State-Dependent Pricing and the Non-Neutrality of Money
Golosov and Lucas (2007) have challenged the view that infrequent price adjustments by firms explains why money has aggregate real output effects. The basis of their challenge is the 'selection effect' - re-setting firms are not selected at random, they are those firms whose prices are furthest from equilibrium. Because of this the aggregate price level is sufficiently flexible for monetary neutrality. In this paper I add price review costs to an otherwise standard Golosov and Lucas model. This weakens the selection effect and restores monetary non-neutrality to a level comparable to that of the Calvo (1983) pricing model.
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- Fernando E. Alvarez & Francesco Lippi & Luigi Paciello, 2011.
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- Virgiliu Midrigan, 2005. "Is Firm Pricing State or Time-Dependent? Evidence from US Manufacturing," Macroeconomics 0511005, EconWPA. Full references (including those not matched with items on IDEAS)
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