Hyperbolic Discounting and the Phillips Curve

Graham, Liam; Snower, Dennis J.

doi:10.1111/j.1538-4616.2008.00120.x

Cited by 57 publications

(38 citation statements)

References 72 publications

(68 reference statements)

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“…Graham and Snower (2008) show that the presence of nominal wage contracts breaks this observational equivalence in the sense that an econometrician estimating both the Euler equation and the long-run Phillips curve could distinguish an economy with hyperbolic discounting from one with exponential discounting.…”

Section: Introductionmentioning

confidence: 99%

Hyperbolic Discounting and Positive Optimal Inflation

Graham

Snower

2012

Macroecon. Dynam.

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The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan, King, and Wolman [Review of Economic Studies10 (4), 825–860] uses a richer model but still finds deflation optimal. In an otherwise standard New Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.

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Section: Introductionmentioning

confidence: 99%

Hyperbolic Discounting and Positive Optimal Inflation

Graham

Snower

2012

Macroecon. Dynam.

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“…Graham and Snower (2004) was extended in a number of di¤erent directions. Graham and Snower (2008) showed that under hyperbolic time discounting positive money non-superneutralities are more sizeable than under exponential discounting. Vaona andSnower (2007, 2008) showed how the shape of the long-run Phillips curve depends on the shape of the production function.…”

Section: Introductionmentioning

confidence: 99%

Money illusion and the long-run Phillips curve in staggered wage-setting models

Vaona

2013

Research in Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Money illusion and the long-run Phillips curve in staggered wage-setting models Andrea VaonaAbstract: We consider the effect of money illusion -defined referring to Stevens' ratio estimation function -on the long-run Phillips curve in an otherwise standard New Keynesian model of sticky wages. We show that if households under-perceive real economic variables, negative money non-superneutralities will become more severe. On the contrary, if households over-perceive real variables, positive money nonsuperneutralities will arise. We also provide a welfare analysis of our results and we show that they are robust to the inclusion of varying capital into the model. Firms' (over-)under-perception of the real prices of production inputs (strengthens) weakens negative money non-superneutralities. In an appendix, we investigate how money illusion affects the short-run effects of a monetary shock.Keywords: Phillips curve, inflation, nominal inertia, monetary policy, dynamic general equilibrium, money illusion, Stevens' ratio estimation function.JEL classification: E3, E20, E40, E50. Money illusion and the long-run Phillips curve in staggered wage-setting models Andrea Vaona AbstractWe consider the e¤ect of money illusion -de…ned referring to Stevens' ratio estimation function -on the long-run Phillips curve in an otherwise standard New Keynesian model of sticky wages. We show that if households under-perceive real economic variables, negative money non-superneutralities will become more severe. On the contrary, if households over-perceive real variables, positive money non-superneutralities will arise. We also provide a welfare analysis of our results and we show that they are robust to the inclusion of varying capital into the model. Firms'(over-)under-perception of the real prices of production inputs (strengthens) weakens negative money non-superneutralities. In an appendix, we investigate how money illusion a¤ects the short-run e¤ects of a monetary shock.

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“…On these grounds, vector autoregressions (VARs), 19 with their exclusive focus on the IRFs of the system offered a statistically robust (albeit economically sterile) alternative. VARs were heavily criticized 17 Note that the simultaneous equation literature refers to "direct" and "indirect" effects of the exogenous variables instead of "local" and "global" effects. The reason we choose the latter terminology is that indirect=global-direct, where direct=local.…”

Section: Evaluating Macro Models: "Global" Versus "Local" Elasticitiesmentioning

confidence: 99%

“…We refer to the individual equation elasticity as the "local" one and we distinguish it from the "global" elasticity which takes into account all the relevant spillover effects in the multi-equation system. 17 The global elasticities are obtained by the impulse response function (IRF) of an endogenous variable with respect to a one-off unit change (shock) in an exogenous variable. In stable dynamic models, the effects of a shock persist after the shock is over and gradually dissipate with the passage of time.…”

Section: Evaluating Macro Models: "Global" Versus "Local" Elasticitiesmentioning

confidence: 99%