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Learning-by-doing and Endogenous Price-level Inertia

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  • Alok Johri

Abstract

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 in\u2021ation in response to a nominal shock. This occurs because firms temper their desire to raise prices after a positive money growth shock in order to learn and lower future costs.

Suggested Citation

  • Alok Johri, 2005. "Learning-by-doing and Endogenous Price-level Inertia," Department of Economics Working Papers 2005-02, McMaster University.
  • Handle: RePEc:mcm:deptwp:2005-02
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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2005-02.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous price stickiness; Business Cycles; Inf1ation; Nominal rigidities; Learning-by-doing; Propagation mechanisms.;

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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