Ramsey models of fiscal and monetary policy with perfectly-competitive product markets and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit...

In the standard New Keynesian sticky price model the central bank faces no contradiction between the stabilization of inflation and the stabilization of the welfare relevant output gap after a productivity shock hits the economy. When the standard model is enhanced by real wage rigidities or...

This paper explores the influence of wage and price staggering on monetary persistence. First, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labor and product markets. We show that the...

It is common knowledge that the standard New Keynesian model is not able to generate a persistent response in output to temporary monetary shocks. We show that this shortcoming can be remedied in a simple and intuitively appealing way through the introduction of labor turnover costs (such as...