Rule%2Dof%2DThumb%20Consumers%2C%20Nominal%20Rigidities%20and%20the%20Design%20of%20Interest%20Rate%20Rules

Working Papers

Rule-of-Thumb Consumers, Nominal Rigidities and the Design of Interest Rate Rules


CODE: IDB-WP-400
AUTHOR(s): Ocampo Diaz, Sergio
PUBLISHED: May 2013
LANGUAGE: English
RELATED TOPICS: Macroeconomics
DOWNLOAD FILE IN: English

Abstract:

This paper argues that, in the presence of nominal wage rigidities, the exis- tence of Rule-of-Thumb agents and price rigidities does not cause a change in the Taylor Principle as suggested by Galí et al. (2004), and that the only rigid- ity relevant for this result is that faced by Rule-of-Thumb consumers. For doing so, a New-Keynesian model with Rule-of-Thumb agents is proposed. The model discriminates betwen both type of agents when defining wage rigidities, thus al- lowing to identify and measure the factors that affect the Taylor Principle, this also allows to drop complete markets for Rule-of-Thumb agents, and the simple use of non-separable utility functions in order to determine the incidence of the wealth effect when facing staggered wages.

Related Research by JEL Codes:
(or click here to find research by JEL Codes)
  • On Corporate Borrowing, Credit Spreads and Economic Activity in Emerging Economies: An Empirical Investigation
    Working Papers
    IDB-WP-719 - August 2016

    This paper studies the influence of external financial factors on economic activity in emerging economies (EMEs) motivated by a considerable increase in foreign financing by the corporate sector in EMEs since the early 2000s, mainly in the form of bond issuance. A quarterly external financial indicator for several EMEs is built using bond-level data on spreads of corporate bonds issued in fore ... (View publication)

  • Towards a “New” Inflation Targeting Framework: The Case of Uruguay
    Working Papers
    IDB-WP-486 - February 2014

    Using a dynamic stochastic general equilibrium model with financial frictions, this paper evaluates the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of monetary policy. It is found that reserve requirements can be used to achieve the Central Bank’s inflation objectives. The use of this instrument, however, produces a real app ... (View publication)

  • MIDAS Modeling for Core Inflation Forecasting
    Working Papers
    IDB-WP-897 - August 2018

    This paper presents a forecasting exercise that assesses the predictive potential of a daily price index based on online prices. Prices are compiled using web scrapping services provided by the private company PriceStats in cooperation with a finance research corporation, State Street Global Markets. This online price index is tested as a predictor of the monthly core inflation rate in Argenti ... (View publication)

Hello, Welcome to the IDB!

Please join our mailing list by simply entering your email below.