Monetary Policy Puzzle and wealth targeting consumers

In this paper, I document that the three equation new keynesian model predicts a strong overreaction of real wages to monetary policy shocks, whereas the response is close to zero in datas. This puzzle may be solved by sticky wages but I show that this overreaction is created by the intertemporal choice of households, on which the recent forward guidance literature have cast doubts. Then, I build a simple new keynesian model with bounded rationality. At each period, households do not form a consistent plan for their lifetime but choose between leisure, consumption and future wealth. It transposes joy of giving model to the business cycles analysis. I show that this simple model generates more realistic response to monetary policy shocks than the three equation new keynesian model. The model also highlights the importance of perceived future wealth and asset supply. Their response to changes in real inetrest rates deeply affects consumption and leisure decision. This point could be useful for more complicated model like Heterogenous agents or Behavioral new keynesian model. JEL Classification: D83,D8