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Firm-Specific Capital, Nominal Rigidities and the Business Cycle

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Author Info
David Altig
Lawrence Christiano
Martin Eichenbaum
Jesper Linde

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Abstract

Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our model is consistent with post-war U.S. 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11034.

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Date of creation: Jan 2005
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Handle: RePEc:nbr:nberwo:11034

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E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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