State-dependent pricing turns money into a two-edged sword

Le, Vo Phuong Mai ORCID: https://orcid.org/0000-0003-3374-9694, Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947 and Minford, Anthony ORCID: https://orcid.org/0000-0003-2499-935X 2021. State-dependent pricing turns money into a two-edged sword. [Working Paper]. Cardiff Economics Working Papers.

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Abstract

Strong evidence exists that price/wage durations are dependent on the state of the economy, especially inflation. We embed this dependence in a macro model of the US that otherwise does well in matching the economy's behaviour in the last three decades; it now also matches it over the whole post-war period. This finding implies a major new role for monetary policy: besides controlling inflation it now determines the economy's price stickiness. We find that, when backed by fiscal policy in preventing a ZLB, by targeting nominal GDP monetary policy can achieve high price stability and avoid large cyclical output fluctuations.

Item Type:	Monograph (Working Paper)
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff Economics Working Papers
Date of Acceptance:	30 June 2021
Last Modified:	28 Nov 2022 12:40
URI:	https://orca.cardiff.ac.uk/id/eprint/141009

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