State-Dependent Pricing And The Dynamics Of Money And Output
AbstractStandard macroeconomic models of price stickiness assume that each firm leaves its price unchanged for a fixed amount of time. The authors present an alternative model in which the pricing decision depends on the state of the economy. They find a method of aggregating individual price changes that allows a simple characterization of macroeconomic variables. The model produces a positive money-output correlation and an empirical Phillips curve. In addition, the impact of monetary shocks depends crucially on the current level of output, which points to a natural connection between state-dependent microeconomics and state-dependent macroeconomics. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoPaper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1989_32.
Length: 26 pages
Date of creation: 1989
Date of revision:
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pricing ; money ; production ; monetary policy;
Other versions of this item:
- Caplin, Andrew & Leahy, John, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 683-708, August.
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