The lumpy nature of plant-level investment is generally not taken into account in the context of New Keynesian monetary theory (see, e.g., Christiano et al., 2005; Woodford, 2005). Our main result shows that if this theory is augmented by a standard model of lumpy investment, monetary policy shocks...

We demonstrate that the presence of an empirically plausible labor adjustment decision at the firm level rationalizes strategic complementarities in price-setting which help explain inflation dynamics. Those strategic complementarities are typically assumed away in the related existing...

We find that demand shocks play an important role for business-cycle fluctuations in unemployment and job vacancies. The reason is that those shocks give a strong incentive to demand-constrained firms to adjust production and thereby labor input. Furthermore we argue that whether real wage...

We consider a medium-scale New-Keynesian model which combines features that have been shown to explain fairly well postwar U.S. business cycles. Our main result demonstrates that the determinacy properties of forward-looking interest rate rules resemble, at least qualitatively, the corresponding...

In the presence of capital accumulation the Taylor principle may not be sufficient for determinacy under reasonable parameter values. In this paper I consider a two-sector extension of the models used in the existing literature. I show that what matters for whether the Taylor principle is...