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Heterogeneous firm dynamics and price setting behavior

Author

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  • Ma, Bing
  • Zheng, Min

Abstract

Empirical studies in reset price inflation find it difficult to justify volatile actual inflation while maintaining the volatility of reset price inflation at a reasonably low level. Firm's price setting behavior plays an important role in generating volatility of inflation. This paper employs an innovative approach by introducing firm heterogeneity into a micro-founded Calvo-type partial equilibrium model to study price setting behavior and demonstrates that granularity is a potential solution to the reset price inflation puzzle. Granular effects are also shown to be robust under different sets of parameter values.

Suggested Citation

  • Ma, Bing & Zheng, Min, 2022. "Heterogeneous firm dynamics and price setting behavior," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003858
    DOI: 10.1016/j.frl.2021.102383
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    References listed on IDEAS

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