Rule of Thumb Consumers Meet Sticky Wages

It has been argued that rule of thumb consumers substantially alter the determi- nacy properties of interest rate rules and the dynamics of an otherwise standard new- keynesian model. In this paper we show that nominal wage stickiness helps restoring standard results. Key fndings are that when wages are sticky i) the Taylor Principle returns the necessary condition for equilibrium determinacy; ii) consumption rises in response to an innovation in government spending just if monetary policy is moderately anti-infationary. Our results help explaining the reduction in the expansionary effects of fiscal shocks observed in the U.S. after 1980