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dc.contributor.author Beaudry, Paul
dc.contributor.author Portier, Franck
dc.date.accessioned 2018-04-26T10:18:37Z
dc.date.available 2018-04-26T10:18:37Z
dc.date.issued 2018-03
dc.identifier.uri http://hdl.handle.net/10230/34487
dc.description.abstract In this paper we present a generalized sticky price model which allows, depending on the parameterization, for demand shocks to maintain strong expansionary effects even in the presence of perfectly flexible prices. The model is constructed to incorporate the standard threeequation New Keynesian model as a special case. We refer to the parameterizations where demand shocks have expansionary effects regardless of the degree of price stickiness as Real Keynesian parameterizations. We use the model to show how the effects of monetary policy - for the same degree of price stickiness – differ depending whether the model parameters are within the Real Keynesian subset or not. In particular, we show that in the Real Keynesian subset, the effect of a monetary policy that tries to counter demand shocks creates the opposite trade-off between inflation and output variability than under more traditional parameterizations. Moreover, we show that under the Real Keynesian parameterization neo-Fisherian effects emerge even though the equilibrium remains unique. We then estimate our extended sticky price model on U.S. data to see whether estimated parameters tend to fall within the Real Keynesian subset or whether they are more in line with the parameterization generally assumed in the New Keynesian literature. In passage, we use the model to justify a new SVAR procedure that offers a simple presentation of the data features which help identify the key parameters of the model. The main finding from our multiple estimations, and many robustness checks is that the data point to model parameters that fall within the Real Keynesian subset as opposed to a New Keynesian subset. We discuss both (i) how a Real Keynesian parametrization offers an explanation to puzzles associated with joint behaviour of inflation and employment during the zero lower bound period and during the Great Moderation period, (ii) how it potentially changes the challenge faced by monetary policy if authorities want to achieve price stability and favour employment stability.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;91
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.rights.uri https://creativecommons.org/licenses/by/4.0/
dc.title Real Keynesian models and sticky prices
dc.type info:eu-repo/semantics/workingPaper
dc.subject.keyword Monetary policy
dc.subject.keyword Business cycle
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess

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