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Nominal inertia in a competitive model with an incomplete capital market

Published online by Cambridge University Press:  17 August 2016

Torben M. Andersen  and
Michael Christensen
Torben M. Andersen
Affiliation:
University of Aarhus, Denmark
Michael Christensen
Affiliation:
The Aarhus School of Business, Denmark
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Summary

In an intertemporal model with competitive labour and product markets it is shown how nominal inertia with asymmetrical adjustment of nominal wages and prices may arise even though there are no informational asymmetries between the labour and the product markets. As a consequence, nominal shocks can have real effects. Nominal inertia is in the present setting generated by the interplay between incomplete capital markets and an inability of agents to disentangle temporary from permanent shocks.

Résumé

Résumé

Dans un modèle intertemporel avec des marchés du travail et des biens concurrentiels, il est montré comment une inertie nominale avec un ajustement asymétrique des prix et des salaires nominaux peut survenir même s’il n’y a aucune asymétrie d’information entre le marché du travail et des biens de consommation. En conséquence, les chocs nominaux peuvent avoir des effets réels. L’inertie nominale est, dans le cadre spécifié ci-dessus, généré par l’interaction entre les marchés de capitaux imparfaits et l’incapacité des agents à distinguer les chocs temporaires des chocs permanents.

Keywords

E32E52E32E52
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 62 , Issue 3-4 , 1996 , pp. 239 - 253
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1996 

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Footnotes

(*)

Comments and suggestions from Per B. Overgaard, Bo Sandemann Rasmussen, Ole Risager and two anonymous referees are gratefully acknowledged. The paper is written as part of the HCM-project “Imperfect Competition in Intertemporal General Equilibrium Macro-Models”.

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