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How Monetary Policy Can Have Permanent Real Effects with Only Temporary Nominal Rigidity

Citation

McDonald, IM and Sibly, HA, How Monetary Policy Can Have Permanent Real Effects with Only Temporary Nominal Rigidity, Scottish Journal of Political Economy, 48, (5) pp. 532-546. ISSN 0036-9292 (2001) [Refereed Article]

DOI: doi:10.1111/1467-9485.00213

Abstract

A macroeconomic model is developed in which the psychological concept of loss aversion is incorporated into workers' preferences. The impact of monetary, policy in the presence of loss aversion depends on the specification of the reference wage. The plausible specification that a worker's reference wage is the real wage she was paid in the previous period is considered in detail. Specifying the reference wage in this way, we show that an unanticipated change in monetary policy has a permanent, real effect when short term labour contracts are written in nominal wages.

Item Details

Item Type:Refereed Article
Research Division:Economics
Research Group:Economic Theory
Research Field:Macroeconomic Theory
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Monetary Policy
Author:Sibly, HA (Dr Hugh Sibly)
ID Code:22938
Year Published:2001
Web of Science® Times Cited:4
Deposited By:Economics and Finance
Deposited On:2001-08-01
Last Modified:2002-05-09
Downloads:0

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