Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-offs

Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-offs

We develop a two-sector monetary model with a centralized and decentralized market. Activities in the centralized market resemble those in a standard New Keynesian economy with price rigidities. In the decentralized market agents engage in bilateral exchanges for which money is essential. This paper...

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Veröffentlicht in:American economic journal. Macroeconomics 2011-01, Vol.3 (1), p.60-90
Hauptverfasser: Aruoba, S. Borağan, Schorfheide, Frank
Format: Artikel
Sprache:eng
Schlagworte:
Econometrics
Economic models
Economics
Elasticity of demand
Friction
Households
Inflation rates
Interest rates
Keynesianism
Macroeconomic modeling
Macroeconomics
Monetary policy
Money demand
Prices
Steady state economies
Studies
Utility functions
Vector autoregression
Velocity
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Beschreibung
Zusammenfassung:We develop a two-sector monetary model with a centralized and decentralized market. Activities in the centralized market resemble those in a standard New Keynesian economy with price rigidities. In the decentralized market agents engage in bilateral exchanges for which money is essential. This paper is the first to formally estimate such a model, evaluate its fit based on postwar US data, and assess its money demand properties. Steady-state welfare calculations reveal that the distortions created by the monetary friction may be of similar magnitude as the distortions created by the New Keynesian friction.
ISSN:1945-7707
1945-7715
DOI:10.1257/mac.3.1.60