Abstract for CGBCR Discussion Paper 24
‘Monetary Policy Rules, Real Rigidity and Endogenous Persistence’
George J. Bratsiotis and Chris Martin
December 2002, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 24. Download PDF file (414KB).
The bulk of literature on real rigidity attempts to identify sources of real rigidity in market imperfections while assuming that the money supply is exogenously set. This paper shows that monetary policy preferences affect the responsiveness of marginal cost to output and through this channel they are shown to determine (i) the degree of real rigidity and (ii) the degree of endogenous persistence. We find that substantial levels of real rigidity and persistence can be generated using plausible monetary parameter values and without relying on additional sources of real rigidity.