96-01
Universität Siegen
Fachbereich Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht
Volkswirtschaftliche Diskussionsbeiträge
Michael Gail
Persistency and Money Demand
Distortions in a Stochastic DGE Model with Sticky Prices
Recently macroeconomists
have intensified their efforts to develop models that are able to generate
persistent reactions of real variables to monetary shocks in stochastic
DGE models with nominal rigidities. This has proven to be quite difficult
in models with price staggering only. Most papers show that output is
above steady state only as long as prices are fixed for the firms. In
this article particular attention is given to the role of money demand
and to the form of the utility function. I consider cash-in-advance-(CIA)
as well as money-in-the-utility-function-(MIU) models, with CRRA and GHH
preferences, to evaluate their ability to generate persistence. Persistent
reactions emerge only with a high value of the elasticity of labor supply
with respect to the real wage and an interest rate sensitive money demand
function. CIA-models generally create more persistency than MIU-models.
In the CIA-setup a CRRA utility function generates more persistence than
GHH preferences. The results highligt the importance of the way money
is introduced in a New Neoclassical Synthesis model.
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