An Econometric U.S. Business Cycle Model with Nominal and Real Rigidities

Abstract

We estimate an optimization-based model with sticky prices alone (SP model) and one that combines nominal and real rigidities in the form of costly price and labor adjustments (NRR model) over the U.S. postwar time period. We then compare their ability to generate persistent, positive, responses of output, hours and real wages following a positive shock to money supply, and a short-lived, though persistent, decline in hours worked in response to a positive technology shock, as revealed by U.S. postwar evidence. The estimated SP model generates no endogenous real persistence, and this result still prevails with arbitrarily large price adjustment costs. The estimated SP model also generates a persistent rise, rather than a decline, in hours worked in response to a positive technology shock. In contrast, the estimated NRR model delivers persistent increases in output, hours and real wages following a positive money supply shock, and a decline in hours worked after a positive technology shock. En utilisant de données américaines d'après-guerre, nous avons estimé un modèle standard d'équilibre général avec rigidité des prix, et un modèle combinant, à la fois, les rigidités nominale et réelle en forme de coûts d'ajustement de prix et d'emploi. Dans le modèle standard estimé, la réponse des variables réelles à un choc monétaire n'est qu'instantanée. Cependant, le modèle avec rigidités nominale et réelle génère des effets réels significatifs et persistants; et les heures travaillées diminuent à la suite d'un choc technologique favorable.

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