Journal article
Wealth effects, price markups, and the neo-Fisherian hypothesis
European economic review, v 157
Aug 2023
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
The present paper thoroughly investigates the occurrence of positive comovement between inflation and the nominal interest rate conditional on a nominal shock — the so-called neo-Fisherian hypothesis in a New Keynesian framework. By introducing Jaimovich–Rebelo (JR) consumption–labor nonseparable preferences into an otherwise standard New Keynesian model, we show that neo-Fisherianism depends on the extent of wealth effects in households’ labor supply decisions. Neo-Fisherianism appears more prominent in economic environments with weaker wealth effects in labor supply (in particular for Greenwood–Hercowitz–Huffmann preferences where wealth effects are absent), smaller price-to-wage markups (for which the steady state is less distorted), and smaller real wage rigidity. Following a permanent interest rate shock, the neo-Fisherian hypothesis is guaranteed to hold regardless of the utility preferences or degree of real wage rigidity. A more prominent presence of endogenous capital works in favor of neo-Fisherianism. Finally, 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
- European economic review, v 157
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:001027506300001
- Scopus ID
- 2-s2.0-85162139180
- Other Identifier
- 991020606579904721
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Economics