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Delivering Endogenous Inertia in Prices and Output

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  • Alok Johri

Abstract

This paper presents a DGE model in which aggregate price level inertia is generated endogenously by the optimizing behaviour of price setting ?rms. All the usual sources of inertia are absent here ie., all fi?rms are simultaneously free to change their price once every period and face no adjustment costs in doing so. Despite this, the model generates persistent movements in aggregate output and in?ation in response to a nominal shock. Two modi?cations of a standard one-quarter pre-set price model deliver these results: learning-by-doing and habit formation in leisure.

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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2007-04.

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Length: 38 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:mcm:deptwp:2007-04

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Keywords: Endogenous price stickiness; Business Cycles; Inflation; Nominal rigidities; Learning-by-doing; Habit formation; Propagation mechanisms; Persistence.;

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References

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  1. Johri, Alok & Letendre, Marc-Andre, 2007. "What do `residuals' from first-order conditions reveal about DGE models?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2744-2773, August.
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  37. Alok Johri, 2009. "Online Appendix to "Delivering endogenous inertia in prices and output"," Technical Appendices 07-131, Review of Economic Dynamics.
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Citations

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Cited by:
  1. Alok Johri, 2009. "Delivering Endogenous Inertia in Prices and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 736-754, October.
  2. Johri, Alok & Letendre, Marc-André & Luo, Daqing, 2011. "Organizational capital and the international co-movement of investment," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 511-523.
  3. Christopher M. Gunn & Alok Johri, 2009. "News and knowledge capital," Department of Economics Working Papers 2009-02, McMaster University.
  4. Alok Johri & Bidyut Kumar Talukdar, 2011. "Organizational Capital and Optimal Ramsey Taxation," Department of Economics Working Papers 2011-09, McMaster University.
  5. Kegiang Hou & Alok Johri, 2013. "Intangible Capital and the Excess Volatility of Aggregate Profits," Department of Economics Working Papers 2013-04, McMaster University.

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