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Delivering Endogenous Inertia in Prices and Output

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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 ?rms. All the usual sources of inertia are absent here ie., all fi?rms 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?ation in response to a nominal shock. Two modi?cations of a standard one-quarter pre-set price model deliver these results: learning-by-doing and habit formation in leisure.

Suggested Citation

  • Alok Johri, 2007. "Delivering Endogenous Inertia in Prices and Output," Department of Economics Working Papers 2007-04, McMaster University.
    • Handle: RePEc:mcm:deptwp:2007-04
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    Cited by:

    1. Keqiang Hou & Alok Johri, 2018. "Intangible Capital, the Labor Wedge and the Volatility of Corporate Profits," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 216-234, July.
    2. Talukdar Bidyut, 2014. "Organizational learning and optimal fiscal and monetary policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-31, January.
    3. Alok Johri & Bidyut Talukdar, 2023. "Organizational capital and optimal Ramsey taxation," Indian Economic Review, Springer, vol. 58(1), pages 193-210, July.
    4. Li, Xing & Hou, Keqiang, 2019. "R&D based knowledge capital and future firm growth: Evidence from China’s Growth Enterprise Market firms," Economic Modelling, Elsevier, vol. 83(C), pages 287-298.
    5. Alok Johri, 2009. "Delivering Endogenous Inertia in Prices and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 736-754, October.
    6. Malik, Kashif Zaheer & Ali, Syed Zahid & Khalid, Ahmed M., 2014. "Intangible capital in a real business cycle model," Economic Modelling, Elsevier, vol. 39(C), pages 32-48.
    7. Johri, Alok & Letendre, Marc-André & Luo, Daqing, 2011. "Organizational capital and the international co-movement of investment," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 511-523.
    8. Christopher Gunn & Alok Johri, 2011. "News and knowledge capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 92-101, January.
    9. Kegiang Hou & Alok Johri, 2013. "Intangible Capital and the Excess Volatility of Aggregate Profits," Department of Economics Working Papers 2013-04, McMaster University.
    10. Alok Johri & Muhebullah Karimzada, 2021. "Learning efficiency shocks, knowledge capital and the business cycle: A Bayesian evaluation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1314-1360, November.
    11. Alok Johri, 2009. "Delivering Endogenous Inertia in Prices and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 736-754, October.

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    More about this item

    Keywords

    Endogenous price stickiness; Business Cycles; Inflation; Nominal rigidities; Learning-by-doing; Habit formation; Propagation mechanisms; Persistence.;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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