Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model

Monetary policy is neutral even with fixed prices if free entry determines product variety optimally, as in Dixit and Stiglitz (1977). Entry substitutes for price flexibility in the welfare-based price index when individual prices are sticky. In response to aggregate demand expansions, the intensive (quantity produced of each good) and extensive (number of goods being produced) margins move in offsetting ways, leaving aggregate production unchanged. Price stickiness thus generates deviations from monetary neutrality only in conjunction with entry frictions: when variety is not optimally determined (preferences are not Dixit-Stiglitz), or when entry is subject to sunk costs and lags. Wage stickiness, instead, implies non-neutrality even in the frictionless-entry benchmark.

Download Full-text

Vicarious entrapment: Your sunk costs, my escalation of commitment

PsycEXTRA Dataset ◽

10.1037/e634112013-312 ◽

2011 ◽

Author(s):

Brian C. Gunia ◽

Niro Sivanathan ◽

Adam Galinsky

Keyword(s):

Sunk Costs ◽

Escalation Of Commitment

Download Full-text

Economic effects of monetary policy in Russia: What do large datasets tell us?

Voprosy Ekonomiki ◽

10.32609/0042-8736-2020-4-31-53 ◽

2020 ◽

pp. 31-53 ◽

Cited By ~ 1

Author(s):

Anna A. Pestova ◽

Natalia A. Rostova

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Interest Rates ◽

Economic Activity ◽

Global Financial Crisis ◽

Exchange Rate Regime ◽

Aggregate Demand ◽

Economic Effects ◽

Theoretical Concepts ◽

Empirical Estimates

Is the Bank of Russia able to control inflation and, at the same time, manage aggregate demand using its interest rate instruments? In other words, are empirical estimates of the effects of monetary policy in Russia consistent with the theoretical concepts and experience of advanced economies? This paper is aimed at addressing these issues. Unlike previous research, we employ “big data” — a large dataset of macroeconomic and financial data — to estimate the effects of monetary policy in Russia. We focus exclusively on the period after the 2008—2009 global financial crisis when the Bank of Russia announced the abandoning of its fixed ruble exchange rate regime and started to gradually transit to an interest rate management. Our estimation results do not confirm standard responses of key economic activity and price variables to tightening of monetary policy. Specifically, our estimates do not reveal a statistically significant restraining effect of the Bank of Russia’s policy of high interest rates on inflation in recent years. At the same time, we find a significant deteriorating effect of the monetary tightening on economic activity indicators: according to our conservative estimates, each of the key rate increases occurred in March and December 2014 had led to a decrease in the industrial production index by about 0.2 percentage points within a year.

Download Full-text

Inclusive Growth with Zakat

The Pakistan Development Review ◽

10.30541/v54i4i-iipp.997-1010 ◽

2015 ◽

Vol 54 (4I-II) ◽

pp. 997-1010

Author(s):

Muhammad Mazhar Iqbal

Keyword(s):

Economic Growth ◽

Aggregate Demand ◽

Economic Consequences ◽

Poor People ◽

Kuznets Curve ◽

Inclusive Growth ◽

Marginal Productivity ◽

The Social

Zakat is an annual religious levy that is collected from rich Muslims and its proceeds are disbursed among poor people of the society. It has many spiritual and social merits. For example, it purifies the hearts of zakat-givers as they give away a part of their wealth, one of the most precious things in their lives, seeking the pleasure of God without requiring any worldly gains whatsoever. It bridges the social gap between „haves‟ and „have-nots.‟ This study analyses, however, only economic consequences of Zakat for economic growth. They cannot be appreciated duly unless one understands the following concepts of modern economics; various theories of consumption, aggregate demand, stagnation thesis, consumption puzzle, marginal productivity of capital and Kuznets curve.

Download Full-text