Verein für Socialpolitik Gesellschaft für Wirtschafts- und Sozialwissenschaften Jahrestagung 2001  25. bis 28. September 2001 in Magdeburg, Otto-von-Guericke-Universität

Abstract

Michael GAIL, Universität Siegen

28.09. / 10.45 (G) / Raum: A-216

Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices

In recent times macroeconomists have tried to develop models that are able to generate persistent reactions of real variables to monetary shocks in stochastic dynamic general equilibrium (DGE) models with price rigidities. This has proven to be quite difficult. Chari/Kehoe/McGrattan (1998) show that persistence depends upon the time prices are fixed for the firms. In this article particular attention is given to distortions arising from money demand. I consider cash-in-advance- (CIA) as well as money-in-the-utility-function- (MIU) models to evaluate their ability to generate persistence. Special attention is also given to firm-specific (disaggregated) reactions. The results suggest that persistency depends crucially upon the specific form of the utility function, in particular the implied intertemporal elasticity of labor supply. As the pure effects of money demand distortions themselves are difficult to reveal from the CIA-model results one promising line of future research is to consider more complex MIU-model specifications (with multiplicatively separable preferences).

Paper-Download (pdf-Datei)