UNSPECIFIED. (1998) Nominal rigidity and monetary uncertainty. EUROPEAN ECONOMIC REVIEW, 42 (1). pp. 185-199. ISSN 0014-2921

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Abstract

A stochastic macromodel with dynamically optimising wage-setting households is used to examine the effect on current macroeconomic variables of an anticipated increase in variability of the money stock. There is a nominal rigidity in the form of a money wage set one period in advance, in whose absence monetary uncertainty has no effect on current variables. We show that, for plausible parameterisations, monetary uncertainty combined with nominal rigidity raises the nominal interest rate, depressing aggregate demand and hence current price and output. It also causes the wage to be set higher, increasing the 'natural' rate of unemployment.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	EUROPEAN ECONOMIC REVIEW
Publisher:	ELSEVIER SCIENCE BV
ISSN:	0014-2921
Date:	January 1998
Volume:	42
Number:	1
Number of Pages:	15
Page Range:	pp. 185-199
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/16066

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