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The Analytic Theory of a Monetary Shock

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Listed:
  • Fernando E. Alvarez
  • Francesco Lippi

Abstract

We propose an analytical method to analyze the propagation of a once-and-for-all shock in a broad class of sticky price models. The method is based on the eigenvalue- eigenfunction representation of the dynamics of the cross-sectional distribution of firms’ desired adjustments. A key novelty is that, under assumptions that are appropriate for low-inflation economies, we can approximate the whole profile of the impulse response for any moment of interest in response to an aggregate shock (any displacement of the invariant distribution). We present several applications and discuss extensions.

Suggested Citation

  • Fernando E. Alvarez & Francesco Lippi, 2021. "The Analytic Theory of a Monetary Shock," NBER Working Papers 28464, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28464
    Note: EFG ME
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    Cited by:

    1. Baley, Isaac & Blanco, Andres, 2022. "The Long-Run Effects of Corporate Tax Reforms," CEPR Discussion Papers 16936, C.E.P.R. Discussion Papers.
    2. Georgii Riabov & Aleh Tsyvinski, 2021. "Policy with stochastic hysteresis," Papers 2104.10225, arXiv.org.
    3. Yuki SHIGETA, 2022. "A Continuous-Time Utility Maximization Problem with Borrowing Constraints in Macroeconomic Heterogeneous Agent Models:A Case of Regular Controls under Markov Chain Uncertainty," Discussion papers e-22-009, Graduate School of Economics , Kyoto University.
    4. Isaac Baley & Andrés Blanco, 2021. "Aggregate Dynamics in Lumpy Economies," Econometrica, Econometric Society, vol. 89(3), pages 1235-1264, May.
    5. Zhouzhou Gu & Mathieu Lauri`ere & Sebastian Merkel & Jonathan Payne, 2024. "Global Solutions to Master Equations for Continuous Time Heterogeneous Agent Macroeconomic Models," Papers 2406.13726, arXiv.org.
    6. repec:cam:camjip:2427 is not listed on IDEAS
    7. Fernando Alvarez & Francesco Lippi & Panagiotis Souganidis, 2023. "Price Setting With Strategic Complementarities as a Mean Field Game," Econometrica, Econometric Society, vol. 91(6), pages 2005-2039, November.
    8. Mishel Ghassibe & Anton Nakov, 2025. "Business Cycles with Pricing Cascades," Working Papers 1525, Barcelona School of Economics.
    9. Fernando Alvarez & Francesco Lippi, 2022. "The Analytic Theory of a Monetary Shock," Econometrica, Econometric Society, vol. 90(4), pages 1655-1680, July.
    10. Dirk Krueger & Harald Uhlig, 2022. "Neoclassical Growth with Limited Commitment," NBER Working Papers 30518, National Bureau of Economic Research, Inc.
    11. Andrés Blanco & Isaac Baley, 2022. "The Macroeconomics of Irreversibility," Working Papers 1312, Barcelona School of Economics.
    12. Leonard Bocquet, 2022. "The Network Origin of Slow Labor Reallocation," PSE Working Papers halshs-03703862, HAL.
    13. Alberto Cavallo & Francesco Lippi & Ken Miyahara, 2024. "Large Shocks Travel Fast," American Economic Review: Insights, American Economic Association, vol. 6(4), pages 558-574, December.
    14. Leonard Bocquet, 2022. "The Network Origin of Slow Labor Reallocation," Working Papers halshs-03703862, HAL.
    15. Bocquet, L., 2024. "The Network Origin of Slow Labour Reallocation," Cambridge Working Papers in Economics 2465, Faculty of Economics, University of Cambridge.
    16. Krueger, Dirk & Uhlig, Harald, 2023. "Neoclassical growth with long-term one-sided commitment contracts," CFS Working Paper Series 698, Center for Financial Studies (CFS).

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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