Essays on sluggishness in macroeconomics
My dissertation studies sluggishness in macroeconomics. It consists of three essays. The first essay (Chapter 1) develops a model which can explain the hump-shaped impulse response of inflation to a monetary shock. A standard New Keynesian (NK) model is augmented to include a dynamic externality as well as sticky wages and variable capital utilization. In simulations, I assume purely forward-looking nominal rigidities in nominal prices and wages a la Calvo. Nevertheless, we can show that inflation is hump-shaped under a reasonable range of parameters. It will be also shown that, in order for inflation to be hump-shaped, sticky wages and variable capital utilization are important as well as a dynamic externality. The second essay (Chapter 2) studies the role of the information updating scheme in the sticky information model. I compare the predictions of the sticky information model under two different information updating schemes: Mankiw and Reis' original updating scheme and an updating scheme where all firms do so deterministically. On the surface, both models are reasonable a priori. However, the sticky information model under our alternative scheme suffers from diminished persistence and a reduced hump shape in its impulse response function for inflation. The attractive results in Mankiw and Reis critically depend on their information updating scheme. Third essay (Chapter 3) extends the sticky information model by Mankiw and Reis. They apply the sticky information assumption to a model in which everything is originally static and the optimal choice is made in a static manner. In contrast, this essay considers a dynamic model in which the optimal choice is originally made dynamically due to adjustment costs. This essay applies the sticky information assumption to this type of dynamic model. A useful aggregation result with sticky information is shown. Using the neoclassical model of investment, fixed investment tends to have a hump-shaped response to a shock to profitability and to have additional persistence notwithstanding the model's simplicity.
School:The Ohio State University
School Location:USA - Ohio
Source Type:Master's Thesis
Keywords:inflation sticky prices new keynesian phillips curve dynamic externality information investment
Date of Publication:01/01/2005