Hump-shaped Behavior of Inflation and Dynamic Externality

Takayuki Tsuruga

No 614, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: This paper develops a model which can explain the hump-shaped impulse response of inflation to a monetary shock. A standard New Keynesian (NK) model is augmented so as to include dynamic externality with sticky wages and variable capital utilization. In our analysis, we assume purely forward-looking nominal rigidities in nominal prices and wages a la Calvo(1983). Nevertheless, we can show that inflation is hump-shaped under a reasonable range of parameters. It will be also shown that, in order for inflation to be hump-shaped, sticky wages and variable capital utilization are important as well as dynamic externalities.

Keywords: Inflation; New Keynesian Phillips curve; Sticky-price model; Sticky wages; Variable capital utilization; Dynamic Externality (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The hump-shaped behavior of inflation and a dynamic externality (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:614

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