Norges Bank

Working Paper

Rule-of-thumb consumers, productivity and hours

Author:
by Francesco Furlanetto and Martin Seneca
Series:
Working Paper
Number:
5/2007

In this paper we study the transmission mechanisms 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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ISSN 1502-8190 (online)

Published 14 November 2007 09:25
Published 14 November 2007 09:25