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Inflation and real activity with firm-level productivity shocks

Author

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  • Michael Dotsey
  • Robert G. King
  • Alexander L. Wolman

Abstract

In the last ten years there has been an explosion of empirical work examining price setting behavior at the micro level. The work has in turn challenged existing macro models that attempt to explain monetary nonneutrality, because these models are generally at odds with much of the micro price data. In response, economists have developed a second generation of sticky-price models that are state dependent and that include both fixed costs of price adjustment and idiosyncratic shocks. Nonetheless, some ambiguity remains about the extent of monetary nonneutrality that can be attributed to costly price adjustment. Our paper takes a step toward eliminating that ambiguity.

Suggested Citation

  • Michael Dotsey & Robert G. King & Alexander L. Wolman, 2013. "Inflation and real activity with firm-level productivity shocks," Working Papers 13-35, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:13-35
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    2. repec:eee:joecas:v:15:y:2017:i:c:p:64-75 is not listed on IDEAS
    3. Costain, James & Nakov, Anton, 2015. "Precautionary price stickiness," Journal of Economic Dynamics and Control, Elsevier, vol. 58(C), pages 218-234.
    4. Michael K. Johnston, 2009. "Real and Nominal Frictions within the Firm: How Lumpy Investment Matters for Price Adjustment," Staff Working Papers 09-36, Bank of Canada.
    5. Franz Ruch & Neil Rankin & Stan du Plessis, 2016. "Working Paper – WP/16/06- Decomposing inflation using micro-price-level data- South Africa’s pricing dynamics," Working Papers 7353, South African Reserve Bank.

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    Keywords

    Pricing ; Pricing - Mathematical models;

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