Working Paper Series no. 123: Technology Shocks and Monetary Policy in an Estimated Sticky Price Model of the US Economy

Abstract

In this paper, we, seek to characterize the dynamic effects of permanent technology shocks and the way in which US monetary authorities reacted to these shocks over the sample 1955(1)--2002(4). To do so, we develop an augmented sticky price-sticky wage model of the business cycle, which is estimated by minimizing the distance between theoretical, dynamic responses of key variables to a permanent technology shock and their structural VAR counterparts. In a second step, we compare these responses with the outcome of the optimal monetary policy.

Sanvi Avouyi-Dovi and Julien Matheron
April 2005

Classification JEL : E31, E32, E58.

Keywords : Sticky prices and wages, Taylor rule, Optimal monetary policy.