The Role of Money Demand in a Business Cycle Model with Staggered Wage Contracts

Rafael Gerke and Jens Rubart ()

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: The question of the main determinants of persistent responses due to nominal shocks captures, at least since Chari et al. (2000), a major part of the recent macroeconomic debate. However, the question whether sticky wages and/or sticky prices are sufficient for persistent reactions of key economic variables remains open. In the present model we allow for nominal rigidities due to Taylor- like wage setting as well as price adjustment costs. However, as our analysis illustrates, smoothing marginal costs seems crucial to derive a contract multiplier, wage staggering alone is not sufficient. Without considering a more specific analysis of factor market frictions, we enforce a point made by Erceg (1997) by analyzing the structure of money demand. In particular, we analyze a `standard' consumption based money demand function by varying the interest rate elasticity of money demand as well as the steady state rate of money holdings. Our results show that the persistency of the output/price dynamics can be affected crucially by the form of the implicit money demand function. In particular, it is shown that staggered wage contracts have to be accompanied by a sufficiently low interest rate elasticity, otherwise the model fails to reproduce reasonable responses of real variables.

Date: 2009
Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/77421/
References: Add references at CitEc
Citations:

Published in Darmstadt Discussion Papers in Economics . 142 (2009)

Downloads: (external link)
http://tuprints.ulb.tu-darmstadt.de/4783

Related works:
Journal Article: THE ROLE OF MONEY DEMAND IN A BUSINESS CYCLE MODEL WITH STAGGERED WAGE CONTRACTS (2006)
Working Paper: The role of money demand in a business cycle model with staggered wage contracts (2005)
Working Paper: The Role of Money Demand in a Business Cycle Model with Staggered Wage Contracts (2005)
Working Paper: The Role of Money Demand in a Business Cycle Model with Staggered Wage Contracts (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:77421

Access Statistics for this paper

More papers in Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL) Contact information at EDIRC.
Bibliographic data for series maintained by Dekanatssekretariat ().