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Strategic complementarities as stochastic control under sticky price

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  • Lambert Dong

Abstract

We examine how monetary shocks spread throughout an economic model characterized by sticky prices and general equilibrium, where the pricing strategies of firms are interlinked, fostering a mutually beneficial relationship. In this dynamic equilibrium, pricing choices of firms are influenced by overall economic factors, which are themselves affected by these decisions. We approach this situation using a path integral control method, yielding several important insights. We confirm the presence and uniqueness of the equilibrium and scrutinize the impulse response function (IRF) of output subsequent to a shock affecting the entire economy.

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  • Lambert Dong, 2024. "Strategic complementarities as stochastic control under sticky price," Papers 2403.19847, arXiv.org.
    • Handle: RePEc:arx:papers:2403.19847
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