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Abstract

The purpose of this paper is to construct a quantitative equilibrium model with price setting and use it to ask whether staggered price setting can generate persistent output fluctuations following monetary shocks. We construct a business cycle version of a standard sticky price model in which imperfectly competitive firms set nominal prices in a staggered fashion. We assume that prices are exogenously sticky for a short period of time. Persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices very much when they can do so. We find the amount of endogenous stickiness to be small. As a result, we find that such a model cannot generate persistent movements in output following monetary shocks.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 68 (2000)
Issue (Month): 5 (September)
Pages: 1151-1180

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Handle: RePEc:ecm:emetrp:v:68:y:2000:i:5:p:1151-1180

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Find related papers by JEL classification:

• E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

References

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1. Advanced Monetary Theory and Policy (ECON 447)
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