real indeterminacy
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2009 ◽  
Vol 14 (1) ◽  
pp. 119-135 ◽  
Author(s):  
Koray Akay

A monetary cash-in-advance model is known to be prone to real indeterminacy if the intertemporal elasticity of substitution in consumption is sufficiently low. Moreover, if the model features habit formation in consumption, the scope of indeterminacy increases substantially. This paper shows that many of the nominal frictions and real rigidities commonly used in the New Keynesian paradigm act to decrease the scope of this indeterminacy. These frictions include stickiness in prices and wages, adjustment costs in investment, and variable capacity utilization. When they are all used together in the model, the problem of indeterminacy nearly vanishes, even when habit formation in consumption is allowed.


2007 ◽  
Vol 12 (1) ◽  
pp. 72-96 ◽  
Author(s):  
STÉPHANE AURAY ◽  
PATRICK FÈVE

This paper proposes a sunspot-based mechanism that quantitatively accounts for the main monetary facts. In particular, we propose a cash-in-advance model with habit persistence and local durability in consumption decisions. In this context, when habit persistence is strong enough, there is real indeterminacy. We show that when sunspots positively correlate with money injections, the model generates a persistent response of inflation, a hump-shaped response of output, and the price puzzle. We then apply the model to the U.S data and we show that it performs well in reproducing the monetary transmission mechanism and the price puzzle in the short run.


2005 ◽  
Vol 8 (1) ◽  
pp. 48-67 ◽  
Author(s):  
Stéphane Auray ◽  
Fabrice Collard ◽  
Patrick Fève

2002 ◽  
Vol 37 (4) ◽  
pp. 325-340 ◽  
Author(s):  
Marta Faias ◽  
Emma Moreno-Garcı́a ◽  
Mário Rui Páscoa
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