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Aggregation and Optimization with State-Dependent Pricing: A Comment

  • Vladislav Damjanovic
  • Charles Nolan

A key argument in Caplin and Leahy (1997) states that the correlation between monetary shocks and output is falling in the variance of the money supply. We demonstrate that this conclusion depends on solving for the correlation in the nonstationary state of the model. In the stationary state, that correlation is initially rising. Copyright The Econometric Society 2006.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 74 (2006)
Issue (Month): 2 (03)
Pages: 565-573

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Handle: RePEc:ecm:emetrp:v:74:y:2006:i:2:p:565-573
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  1. Caplin, A. & Leahy, J., 1992. "Aggregation and Optimization with State-Dependent Pricing," Harvard Institute of Economic Research Working Papers 1595, Harvard - Institute of Economic Research.
  2. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  3. Caplin, Andrew & Leahy, John, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 683-708, August.
  4. Vladislav Damjanovic & Charles Nolan, 2005. "Aggregate Dynamics with Heterogeneous Agents and State-Dependent Pricing," CDMA Working Paper Series 200505, Centre for Dynamic Macroeconomic Analysis.
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