Rule of Thumb Consumers Meet Sticky Wages

Colciago, Andrea (2006): Rule of Thumb Consumers Meet Sticky Wages.

Abstract

It has been argued that rule of thumb consumers substantially alter the determinacy properties of simple interest rate rules and the dynamics of an otherwise standard New-keynesian model. In this paper we show that nominal wage stickiness helps re-establishing standard results. Key findings are that wage stickiness i) affects the shape of determinacy regions in the parameters space, restoring the relevance of the Taylor principle for the conduct of monetary policy; ii) implies that a rise in consumption in response to an innovation in government spending is not a robust feature of the model.

• Item Type: MPRA Paper
• Institution: University of Milano Bicocca
• Language: English
• Keywords: Rule of Thumb Consumers; Sticky Wages; Determinacy; Fiscal Shocks
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

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