Rule-of-Thumb Consumers, Nominal Rigidities and the Design of Interest Rate Rules
This paper argues that, in the presence of nominal wage rigidities, the existence of Rule-of-Thumb agents and price rigidities does not cause a change in the Taylor Principle as suggested by Galí et al. (2004), and that the only rigidity relevant for this result is that faced by Rule-of-Thumb consumers. For doing so, a New-Keynesian model with Rule-of-Thumb agents is proposed. The model discriminates between both type of agents when defining wage rigidities, thus al- lowing to identify and measure the factors that affect the Taylor Principle, this also allows to drop complete markets for Rule-of-Thumb agents, and the simple use of non-separable utility functions in order to determine the incidence of the wealth effect when facing staggered wages.
| Main Author: | |
|---|---|
| Other Authors: | |
| Format: | Working Papers biblioteca |
| Language: | English |
| Published: |
Inter-American Development Bank
|
| Subjects: | Monetary Policy, C68 - Computable General Equilibrium Models, E32 - Business Fluctuations • Cycles, E37 - Forecasting and Simulation: Models and Applications, IDB-WP-400, |
| Online Access: | http://dx.doi.org/10.18235/0011500 https://publications.iadb.org/en/rule-thumb-consumers-nominal-rigidities-and-design-interest-rate-rules |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|