Interest and Prices by Woodford Michael;

Author:Woodford, Michael;
Language: eng
Format: epub
Publisher: Princeton University Press
Published: 2003-08-05T16:00:00+00:00

Figure 5.8 Impulse responses to an unexpected monetary tightening: the constant-capital and variable-capital models compared.

Whether or not one allows for endogenous capital accumulation, the impulse responses resemble the results of VAR studies more closely if one introduces delays of the sort discussed in Section 1.1 above. If one assumes that both consumption and investment spending are determined a period in advance, then the IS block of the endogenous-capital model takes the form

where all coefficients remain the same functions of underlying parameters as in (3.22) and (3.23). Similarly, if all new prices must be determined a period in advance, the AS block takes the form

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