This paper examines the consequences of (S,s) pricing rules in a dynamic economy with heterogeneous costs of price adjustment. We construct the stationary distributions for aggregate output and prices for our model economy. As a result of our assumption of heterogeneous costs we find that: (i) Some sectors change prices more regularly than others; (ii) Price changes are asynchronized (relative prices may be moving in opposite directions in different sectors); (iii) The economy may be more sensitive to demand shocks. There is broad empirical support for the predictions of the model.
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number
0505.
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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