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Reset Price Inflation and Monetary Policy

Author

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  • Engin Kara

Abstract

Bils, Klenow and Malin (2009) recently constructed an empirical measure of reset price in.ation (i.e. the rate of change of all ‘desired’ prices) for the US economy, by using the micro-data underpinning the CPI and evaluated whether the existing pricing models can explain both the observed reset inflation and aggregate inflation. They found that time-dependent models and state-dependent models are both inadequate in this respect. This paper presents a model that tracks the data on reset inflation perfectly well. A main difference between the model in this paper and those in Bils et al. (2009) is that the model in this paper properly accounts for the heterogeneity in contract lengths we observe in the data.

Suggested Citation

  • Engin Kara, 2010. "Reset Price Inflation and Monetary Policy," Bristol Economics Discussion Papers 10/619, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:10/619
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    More about this item

    Keywords

    DSGE models; reset inflation;

    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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