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The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia

  • Carlos Viana de Carvalho

This paper analyzes the implications of heterogeneity in price setting for both price and inflation inertia. Standard models based on Taylor- or Calvo-style price setting usually assume ex-ante identical firms, while Calvo's approach implies only ex-post heterogeneity. While it is known that these models have different implications in terms of the dynamic effects of monetary shocks, the role of heterogeneity has not yet been properly explored. In a simple framework, this paper provides analytical results which suggest that ex-ante heterogeneity should have a larger role in models which attempt to understand price and inflation inertia, particularly in low inflation environments

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 9.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:9
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