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Journal article
Wealth Effects, Price Markups, and the Neo-Fisherian Hypothesis
SSRN Electronic Journal
2022
Abstract
By introducing Jaimovich-Rebelo (JR) consumption-labor non-separable preferences into an otherwise standard New Keynesian model, we show that the occurrence of positive co-movement between inflation and the nominal interest rate conditional on a nominal shock - the so-called neo-Fisherian hypothesis - depends on the extent of wealth effects in households’ labor supply decisions.Neo-Fisherianism appears more prominent in economic environments with i) weaker wealth effects on labor supply (in particular for Greenwood-Hercowitz-Huffmann preferences where wealth effects are absent), and ii) smaller price-to-wage markups (for which the steady state is less distorted). The stabilizing properties of Taylor rules under JR preferences are scrutinized
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Details
- Title
- Wealth Effects, Price Markups, and the Neo-Fisherian Hypothesis
- Creators
- Marco Airaudo - Drexel UniversityIna Hajdini - Federal Reserve Bank of Cleveland
- Publication Details
- SSRN Electronic Journal
- Publisher
- SSRN
- Number of pages
- 42
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Other Identifier
- 991020534931004721