Nominal rigidities, technological change, and monetary policy: Considering a policy trade-off

Eiji Tsuzuki, Tomohiro Inoue

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

We develop an optimizing model with sticky prices and nominal wages (New Key-nesian model) that is extended to allow a constant rate of technological progress and money growth. We investigate whether a policy trade-off exists between stabilizing employment and curbing inflation in the steady state when the rate of technological change decreases. Tsuzuki and Inoue (2010) showed that if both prices and nominal wage rates per unit of labor are sticky, a policy trade-off exists between stabilizing the welfare-relevant employment gap and curbing inflation. In this chapter, we show that their finding is dependent on the definition of the nominal wage rate; that is, if prices and nominal wage rates per unit of effective labor are sticky, there is no policy trade-off.

Original languageEnglish
Title of host publicationMonetary Policy: Roles, Forecasting and Effects
PublisherNova Science Publishers, Inc.
Pages193-214
Number of pages22
ISBN (Print)9781619421813
Publication statusPublished - 2013

Keywords

  • Money growth
  • New keynesian phillips curve
  • Sticky price
  • Sticky wage

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Social Sciences(all)

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    Tsuzuki, E., & Inoue, T. (2013). Nominal rigidities, technological change, and monetary policy: Considering a policy trade-off. In Monetary Policy: Roles, Forecasting and Effects (pp. 193-214). Nova Science Publishers, Inc..