We examine the effect of introducing a specific type of price stickiness into a stochastic growth model subject to a cash in advance constraint. As in previous studies we find the introduction of price rigidities provides a substantial source of monetary non-neutrality, which contributes significantly to output volatility. We show that the introduction of this form of sticky prices improves the model’s performance at explaining inflation but worsens it for output. The most dramatic failure of...Expand abstract
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Sticky prices and volatile output.
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