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Models of price setting and inflation dynamics

Author

Listed:
  • James Costain

    (Banco de España)

  • Anton Nakov

    (Banco de España)

Abstract

We review models of nominal price adjustment based on optimizing or near-optimal behavior, including menu cost models, generalized hazard function models and models of frictional decisions. We also discuss the role of real rigidities and assess the models’ success in explaining retail microdata and inflation dynamics.

Suggested Citation

  • James Costain & Anton Nakov, 2024. "Models of price setting and inflation dynamics," Occasional Papers 2416, Banco de España.
    • Handle: RePEc:bde:opaper:2416e
    DOI: https://doi.org/10.53479/36592
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    File URL: https://www.bde.es/f/webbe/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/24/Files/do2416e.pdf
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    References listed on IDEAS

    as
    1. Ricardo Reis, 2006. "Inattentive Producers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 793-821.
    2. Emi Nakamura & Jón Steinsson, 2010. "Monetary Non-neutrality in a Multisector Menu Cost Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 961-1013.
    3. Bartosz Maćkowiak & Mirko Wiederholt, 2015. "Business Cycle Dynamics under Rational Inattention," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(4), pages 1502-1532.
    4. James Costain & Anton Nakov, 2019. "Logit Price Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(1), pages 43-78, February.
    5. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1415-1464.
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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