Nominal Rigidities, Supply Shocks and Economic Stability

Guido Ascari, Alessandro Flamini () and Lorenza Rossi

No 24, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: This paper shows that nominal rigidities in terms of price stickiness acts as a powerful supply-shock filter that reduces the overall economic instability. Considering a range of admissable values for price stickiness, the volatility of inflation, output and interest rate induced by technology or cost-push shocks can vary up to 50%. The paper suggests a word of caution for policies designed to increase price flexibility which would expose the economy to more economic instability in presence of supply shocks.

Keywords: Price stickiness; economic stability; supply shock; technology shock; cost-push shock. (search for similar items in EconPapers)
JEL-codes: E31 E32 E37 E52 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2012-11
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:024

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