We develop a model of state-dependent pricing that we can log-linearize and compare to the standard Calvo model. In one extreme case, money is neutral with state-dependent pricing even though the probability of price adjustment is constant as in the Calvo model. We use this example to illustrate some of the fundamental differences between the two pricing models. We then examine less extreme cases in which money has real effects with state-dependent pricing. We show how the slope of the Phillips curve depends on the microeconomic environment in which firms operate
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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number
480.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:red:sed004:480
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Find related papers by JEL classification: E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)