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Menu Costs and Phillips Curves

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  • Mikhail Golosov
  • Robert E. Lucas Jr.

Abstract

This paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation. Sellers can change price only by incurring a real “menu cost.†We calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new U.S. data set of individual prices due to Klenow and Kryvtsov. The prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with international evidence from various studies. The model is also used to conduct numerical experiments on the economy’s response to various shocks. In none of the simulations we conducted did monetary shocks induce large or persistent real responses.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 115 (2007)
Issue (Month): ()
Pages: 171-199

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Handle: RePEc:ucp:jpolec:v:115:y:2007:p:171-199

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Krugman and Keynes
    by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2011-06-19 20:18:00
  2. On the dispersion in price rigidities
    by Economic Logician in Economic Logic on 2008-09-05 16:15:00
  3. Time to ditch Calvo Pricing
    by Economic Logician in Economic Logic on 2008-02-13 19:51:00
  4. More On Sticky Prices
    by Josh in The Everyday Economist on 2012-04-13 14:51:12
  5. History of all of modern macro (ignoring the last 30 years)
    by pushmedia1 in The Ambrosini Critique on 2009-07-19 08:56:00
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