Should monetary policy lean against the wind in a small-open economy? Revisiting the Tinbergen rule

Arbeitspapier

The frequencies at which prices and wages are adjusted, interpreted as price and wage flexibility, are key elements in workhorse models used for policy analysis. Yet, there is little evidence regarding the relationship between these two sources of nominal rigidities. Using two large and highly disaggregated price and wage microdata sets, this paper provides evidence that the industries changing more frequently wages reset prices more often. Once the frequency of wage adjustments is accounted for, the share of labor costs becomes less relevant in explaining the frequency of price changes, calling for a reinterpretation on previous findings that the labor share is a robust determinant of the frequency of price adjustments. The results in this study have implications for New Keynesian models' microfoundations, as their predictions have proven to be sensitive to the nominal rigidities assumptions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers ; No. 2021-01

Classification and Topics

• Classification: Wirtschaft ; Model Construction and Estimation ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Monetary Policy ; Central Banks and Their Policies ; Policy Objectives; Policy Designs and Consistency; Policy Coordination ; Open Economy Macroeconomics ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Monetary policy ; Macroprudential policies ; Leaning against the wind ; Tinbergen rule ; Capital controls

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Rogelio De la Peña
• Event: Veröffentlichung
• (who): Banco de México
• (where): Ciudad de México
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/240710
• Last update: 10.03.2025, 11:43 AM CET