Monetary Shocks in a Model with Inattentive Producers
AbstractWe study a model in which prices respond slowly to shocks because firms must pay a fixed cost to observe the determinants of the profit maximizing price, as pioneered by Caballero (1989) and Reis (2006). We extend their analysis to the case of random tran- sitory variation in the firm’s observation cost and characterize the mapping from the distribution of observation cost to the distribution of the times between consecutive re- views/price adjustments of a firm. We aggregate a continuum of firms and characterize analytically the cross-sectional distribution of the duration of reviews/prices. We establish the dependence of the real effect of a monetary shock on the distribution of price durations and hence on the distribution of observation costs and discuss applications.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9228.
Date of creation: Nov 2012
Date of revision:
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Other versions of this item:
- Fernando Alvarez & Francesco Lippi & Luigi Paciello, 2012. "Monetary Shocks in a Model with Inattentive Producers," EIEF Working Papers Series 1208, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2012.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-22 (All new papers)
- NEP-MAC-2012-12-22 (Macroeconomics)
- NEP-MON-2012-12-22 (Monetary Economics)
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