Nominal Rigidities, Monetary Policy and Pigou Cycles

Bibliographic Data

ID9706720
AuthorsStéphane Auray (CREST/Ensai, Université du Littoral Côte d’Opale (EQUIPPE), GREDI and CIRPEE), Paul Gomme (0000-0001-6649-8647, Concordia University and CIREQ), Shen Guo (Central University of Finance and EconomicsBeijing)
Year2013
Volume123
Issue568
Pages455-473
Publication date2013-05-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12000
OpenAlexW2238958196
LanguageEN
Citations received1
References cited23

Capturing the boom phase of Pigou cycles and resolving the comovement problem require positive sectoral comovement. This article addresses these observations using a two‐sector New Keynesian model. Price rigidities dampen movements in the relative price of durables following a monetary policy shock. Durables and non‐durables are estimated to be complements in utility, allowing for a resolution of the comovement problem for modest degrees of price rigidity. Nominal rigidities also make firms forward‐looking in their pricing behaviour, which leads to relative price dynamics that generate positive sectoral comovement in the boom phase of a Pigou cycle

Boom · Business cycle · Economics · Inflation (cosmology · Keynesian economics · Macroeconomics · Monetary economics · Monetary policy · New Keynesian economics · Pigou effect · Rational expectations · Shock (circulatory · Economic theories and models · Economic Theory and Policy · Monetary Policy and Economic Impact