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How Monetary Policy Can Have Permanent Real Effects with Only Temporary Nominal Rigidity
journal contribution
posted on 2023-05-16, 13:13 authored by McDonald, IM, Sibly, HAA 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.
History
Publication title
Scottish Journal of Political EconomyVolume
48Issue
5Pagination
532-546ISSN
0036-9292Department/School
TSBEPublisher
Blackwell Publ LtdPlace of publication
United KingdomRepository Status
- Restricted