WP 48/2007: Rule-of-thumb consumers, productivity and hours |  |
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| Author(s): | Furlanetto, Francesco; Seneca, Martin | | Subject: | Danish economy; Economic activity and employment; Models | | Type: | Working Papers | | Year of publication: | 2007 | | Date of publication: | 11/13/2007 |
In this paper we study the transmission mechanism of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. We show that the presence of rule-of-thumb consumers is also very helpful in accounting for recent empirical evidence on productivity shocks. Rule-of-thumb agents, together with nominal and real rigidities, play an important role in reproducing the negative response of hours and the delayed responses of output and consumption after a productivity shock.
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