Can Nominal Wage and Price Rigidities Be Equivalent Propagation Mechanisms?
) (The National Bank of Denmark) Abstract Does it matter for the propagation mechanism following nominal shocks whether nominal rigidities are specified as sticky wages instead of sticky prices? We analyze the question in a standard dynamic general equilibrium “new open macro-economy” model, which is solved analytically. By comparing the adjustment patterns of the terms of trade, in an otherwise unchanged model under, respectively, nominal wage and price rigidities, we find that the two types of rigidities give rise to the same persistence pattern. Specifically, nominal wage and price rigidities are equivalent “impact adjusted” propagation mechanisms. Results are presented for one-period nominal rigidities and two-period nominal staggering. Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS he
