Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy

  title={Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy},
  author={Lawrence J. Christiano and Martin Eichenbaum and Charles L. Evans},
  journal={Journal of Political Economy},
  pages={1 - 45}
We present a model embodying moderate amounts of nominal rigidities that accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts that have an average duration of three quarters and variable capital utilization. 
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