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Heterogeneity and Output Fluctuations in a Dynamic Menu-Cost Economy

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  • Caballero, Ricardo J
  • Engel, Eduardo M R A

Abstract

In this paper, the authors study the dynamic behavior of a menu-cost economy where firms are heterogeneous. In this contex t, they generalize the Caplin and Spulber (1987) monetary-neutrality result; show that uniqueness of equilibria depends on the degree of dispersion of firms' positions in their price cycle; characterize the path of output outside the steady state and show that as strateg ic complementarities become more important, expansions become longer an d smoother than contractions; and show that the potential impact of monetary shocks increases in the distance of the economy from its steady state but that an uninformed policymaker will have no effect on output on average. Copyright 1993 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 60 (1993)
Issue (Month): 1 (January)
Pages: 95-119

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Handle: RePEc:bla:restud:v:60:y:1993:i:1:p:95-119

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  1. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1991. "Dynamic (S,s) Economies," NBER Working Papers 3734, National Bureau of Economic Research, Inc.
  2. Sheshinski, Eytan & Weiss, Yoram, 1983. "Optimum Pricing Policy under Stochastic Inflation," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 513-29, July.
  3. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  4. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
  5. Laurence Ball & David Romer, 1987. "The Equilibrium and Optimal Timing of Price Changes," NBER Working Papers 2412, National Bureau of Economic Research, Inc.
  6. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  7. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
  8. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  9. Benabou, Roland, 1989. "Optimal Price Dynamics and Speculation with a Storable Good," Econometrica, Econometric Society, vol. 57(1), pages 41-80, January.
  10. Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 17-26, January.
  11. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  12. repec:fth:coluec:453 is not listed on IDEAS
  13. repec:fth:coluec:420 is not listed on IDEAS
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