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Working Paper

Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy

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We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts of average duration three quarters, and variable capital utilization.
05.01.2001ISSN 2573-7953 WP 01-07DOI 10.26509/frbc-wp-200107

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Christiano, Lawrence, Martin Eichenbaum, and Charles Evans. 2001. “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy.” Federal Reserve Bank of Cleveland, Working Paper No. 01-07. https://doi.org/10.26509/frbc-wp-200107