English, Article, Journal or magazine article edition: Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices and Capital Michael Gail

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Physical Description
  • preprint
Language
  • English

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Title
  • Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices and Capital
Author
  • Michael Gail
Physical Description
  • preprint
Notes
  • This paper considers the implications of adding capital as a factor of production in a stochastic DGE model with sticky prices. Particular attention is given to the role of money demand and to the form of the utility function. I consider cash-in-advance- (CIA) as well as money-in-the-utility-function- (MIU) models, with CRRA and GHH preferences, to evaluate their ability to generate persistence. It is shown that even in a MIU-model with a GHH utility function and a high elasticity of labor supply with respect to the real wage the additional intertemporal substitution channel opened through capital accumulation does have a significant dampening influence on the persistence effects of monetary shocks. In a CIA-setup with GHH preferences the model can generate the liquidity effect. A multiplicatively separable CRRA utility function in the MIU-model cannot account for the observed persistent reactions of inflation and output either.
  • Monetary Policy; New Neoclassical Synthesis; Sticky Prices; Persistency
  • RePEc:sie:siegen:103-02
Language
  • English
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