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Menu Costs and Phillips Curves

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  • Mikhail Golosov
  • Robert E. Lucas

Abstract

This paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation. Sellers can change price only by incurring a real menu cost.' We calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new U.S. data set of individual prices due to Klenow and Kryvtsov. The prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with the Israeli evidence obtained by Lach and Tsiddon. The model is also used to conduct numerical experiments on the economy's response to credible and incredible disinflations and other shocks. In none of the simulations we conducted did monetary shocks induce large or persistent real responses.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10187.

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Date of creation: Dec 2003
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Publication status: published as Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115, pages 171-199.
Handle: RePEc:nbr:nberwo:10187

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  3. On the dispersion in price rigidities
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  4. Time to ditch Calvo Pricing
    by Economic Logician in Economic Logic on 2008-02-13 19:51:00
  5. More On Sticky Prices
    by Josh in The Everyday Economist on 2012-04-13 14:51:12
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