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Firm-Specific Capital, Nominal Rigidities and the Business Cycle

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  • Altig, David E
  • Christiano, Lawrence J.
  • Eichenbaum, Martin
  • Lindé, Jesper

Abstract

Macroeconomic and microeconomic data paint conflicting pictures of price behaviour. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model that resolves this apparent micro/macro conflict. Our model is consistent with post-war US evidence on inflation inertia even though firms re-optimize prices on average once every 1.5 quarters. The key feature of our model is that capital is firm-specific and pre-determined within a period.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4858.

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Date of creation: Jan 2005
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Handle: RePEc:cpr:ceprdp:4858

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