IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Delivering Endogenous Inertia in Prices and Output

  • Alok Johri

    (McMaster University)

This paper presents a DGE model in which aggregate price level inertia is generated endogenously by the optimizing behaviour of price-setting firms. All the usual sources of inertia are absent here ie., all firms are simultaneously free to change their price once every period and face no adjustment costs in doing so. Despite this, the model generates persistent movements in aggregate output and inflation in response to a nominal shock. Two modifications of a standard one-quarter pre-set pricing model deliver these results: learning-by-doing and habit formation in leisure. While the model delivers persistence, simulations based on estimated shocks to tfp and money growth suggest both output and inflation are too volatile relative to the data and fail to closely follow the historical time series. (Copyright: Elsevier)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://dx.doi.org/10.1016/j.red.2009.03.001
Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 12 (2009)
Issue (Month): 4 (October)
Pages: 736-754

as
in new window

Handle: RePEc:red:issued:07-131
Contact details of provider: Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/review.htm
Email:


More information through EDIRC

Order Information: Web: http://www.EconomicDynamics.org/RED17.htm Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. repec:rus:hseeco:316602 is not listed on IDEAS
  2. Guido Ascari, 2004. "Staggered Prices and Trend Inflation: Some Nuisances," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 642-667, July.
  3. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  4. Martin S. Eichenbaum & Lars Peter Hansen & Kenneth J. Singleton, 1986. "A Time Series Analysis of Representative Agent Models of Consumption andLeisure Choice Under Uncertainty," NBER Working Papers 1981, National Bureau of Economic Research, Inc.
  5. Yongsung Chang & Joao Gomes & Frank Schorfheide, 2002. "Learning by Doing as a Propagation Mechanism," Macroeconomics 0204002, EconWPA.
  6. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
  7. Rosen, Sherwin, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 366-82, August.
  8. Alok Johri, 2007. "Delivering Endogenous Inertia in Prices and Output," Department of Economics Working Papers 2007-04, McMaster University.
  9. Linda Argote & Sara L. Beckman & Dennis Epple, 1990. "The Persistence and Transfer of Learning in Industrial Settings," Management Science, INFORMS, vol. 36(2), pages 140-154, February.
  10. Johri, Alok & Letendre, Marc-Andre, 2007. "What do `residuals' from first-order conditions reveal about DGE models?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2744-2773, August.
  11. Russell Cooper & Alok Johri, 1996. "Dynamic Complementarities: A Quantitative Analysis," NBER Working Papers 5691, National Bureau of Economic Research, Inc.
  12. Cho, Jang-Ok & Cooley, Thomas F & Phaneuf, Louis, 1997. "The Welfare Cost of Nominal Wage Contracting," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 465-84, July.
  13. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc.
  14. Ronald S. Jarmin, 1994. "Learning by Doing and Competition in the Early Rayon Industry," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 441-454, Autumn.
  15. David Altig & Lawrence J. Christiano & Martin Eichenbaum & Jesper Linde, 2004. "Firm-specific capital, nominal rigidities and the business cycle," Working Paper Series WP-05-01, Federal Reserve Bank of Chicago.
  16. Stokey, Nancy L, 1988. "Learning by Doing and the Introduction of New Goods," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 701-17, August.
  17. R Cooper & Alok Johri, 2000. "Learning by Doing and Aggregate Fluctuations," Department of Economics Working Papers 2000-02, McMaster University.
  18. Huang, Kevin X. D. & Liu, Zheng, 2001. "Production chains and general equilibrium aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 437-462, October.
  19. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  20. repec:cup:macdyn:v:3:y:1999:i:3:p:368-83 is not listed on IDEAS
  21. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
  22. Nelson, E., 1998. "Sluggish inflation and optimizing models of the business cycle," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 303-322, July.
  23. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and Measuring Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1026-1053, October.
  24. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Sticky price models of the business cycle: can the contract multiplier solve the persistence problem?," Staff Report 217, Federal Reserve Bank of Minneapolis.
  25. Kevin Huang, 2006. "Specific factors meet intermediate inputs: implications for the persistence problem," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 483-507, July.
  26. Hafedh Bouakez & Takashi Kano, 2005. "Learning-by-Doing or Habit Formation?," Working Papers 05-15, Bank of Canada.
  27. Jean-Pierre Danthine & Andre Kurmann, 2004. "Fair Wages in a New Keynesian Model of the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 107-142, January.
  28. Cook, David, 1999. "Real Propagation of Monetary Shocks: Dynamic Complementarities and Capital Utilization," Macroeconomic Dynamics, Cambridge University Press, vol. 3(03), pages 368-383, September.
  29. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
  30. repec:nbr:nberre:0126 is not listed on IDEAS
  31. Rebecca Achee Thornton & Peter Thompson, 2001. "Learning from Experience and Learning from Others: An Exploration of Learning and Spillovers in Wartime Shipbuilding," American Economic Review, American Economic Association, vol. 91(5), pages 1350-1368, December.
  32. R. Anton Braun & Charles L. Evans, 1996. "Seasonal Solow residuals and Christmas: a case for labor hoarding and increasing returns," Working Papers 575, Federal Reserve Bank of Minneapolis.
  33. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  34. Alok Johri, 2009. "Online Appendix to "Delivering endogenous inertia in prices and output"," Technical Appendices 07-131, Review of Economic Dynamics.
  35. Baruch Lev & Suresh Radhakrishnan, 2003. "The Measurement of Firm-Specific Organization Capital," NBER Working Papers 9581, National Bureau of Economic Research, Inc.
  36. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Online Appendix to "Firm-Specific Capital, Nominal Rigidities and the Business Cycle"," Technical Appendices 09-191, Review of Economic Dynamics.
  37. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  38. Katharine S. Neiss & Evi Pappa, 2005. "Persistence without too much price stickiness: the role of variable factor utilization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 231-255, January.
  39. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  40. C. Lanier Benkard, 2000. "Learning and Forgetting: The Dynamics of Aircraft Production," American Economic Review, American Economic Association, vol. 90(4), pages 1034-1054, September.
  41. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  42. Tsuruga, Takayuki, 2007. "The hump-shaped behavior of inflation and a dynamic externality," European Economic Review, Elsevier, vol. 51(5), pages 1107-1125, July.
  43. Bergin, Paul R. & Feenstra, Robert C., 2000. "Staggered price setting, translog preferences, and endogenous persistence," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 657-680, June.
  44. Clarke, Andrew J., 2006. "Learning-by-doing and aggregate fluctuations: Does the form of the accumulation technology matter?," Economics Letters, Elsevier, vol. 92(3), pages 434-439, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:issued:07-131. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.