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Rule‐of‐Thumb Consumers, Productivity, and Hours *
Author(s) -
Furlanetto Francesco,
Seneca Martin
Publication year - 2012
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2012.01699.x
Subject(s) - rule of thumb , productivity , economics , thumb , shock (circulatory) , wealth effect , empirical evidence , monetary economics , macroeconomics , computer science , monetary policy , medicine , philosophy , epistemology , algorithm , anatomy
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 when 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 response of output after a productivity shock.