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Inflation and Real Activity with Firm Level Productivity Shocks

  • Robert G. King

    (Boston University)

  • Alexander Wolman

    (Federal Reserve Bank of Richmond)

  • Michael Dotsey

    (Federal Reserve Bank of Philadelphia)

The model's flexibility also allows us to parameterize it in ways that generate behavior consistent with some recent studies in the literature, namely Midrigan (2006) and Golosov and Lucas (2008). We can also use simple versions of the model to understand the relationships between price adjustment at the micro level and aggregated statistics such as the hazard rate. In particular, we find that the model is capable of producing flat hazards at the macro level, even though any firm who has just changed its price faces the upward sloping hazard common in state dependent models.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 367.

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Date of creation: 2009
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Handle: RePEc:red:sed009:367
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  1. Burstein, Ariel Tomas & Hellwig, Christian, 2007. "Prices and Market Shares in a Menu Cost Model," CEPR Discussion Papers 6504, C.E.P.R. Discussion Papers.
  2. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
  3. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
  4. Boivin, Jean & Giannoni, Marc & Mihov, Ilian, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," CEPR Discussion Papers 6101, C.E.P.R. Discussion Papers.
  5. Mark Gertler & John Leahy, 2006. "A Phillips Curve with an Ss Foundation," NBER Working Papers 11971, National Bureau of Economic Research, Inc.
  6. Laurence Ball & David Romer, 1987. "Sticky Prices as Coordination Failure," NBER Working Papers 2327, National Bureau of Economic Research, Inc.
  7. Jonathan L. Willis, 2006. "Magazine prices revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(3), pages 337-344.
  8. James Costain & Anton Nakov, 2011. "Distributional dynamics under smoothly state-dependent pricing," Finance and Economics Discussion Series 2011-50, Board of Governors of the Federal Reserve System (U.S.).
  9. Midrigan, Virgiliu, 2006. "Menu costs, multi-product firms, and aggregate fluctuations," CFS Working Paper Series 2007/13, Center for Financial Studies (CFS).
  10. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
  11. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
  12. Bernardo Guimaraes & Kevin D. Sheedy, 2008. "Sales and monetary policy," LSE Research Online Documents on Economics 25492, London School of Economics and Political Science, LSE Library.
  13. Mikhail Golosov & Robert E. Lucas, 2003. "Menu Costs and Phillips Curves," NBER Working Papers 10187, National Bureau of Economic Research, Inc.
  14. Joseph S. Vavra, 2013. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," NBER Working Papers 19148, National Bureau of Economic Research, Inc.
  15. Chad Syverson, 2003. "Product Substitutability and Productivity Dispersion," NBER Working Papers 10049, National Bureau of Economic Research, Inc.
  16. Foster, Lucia & Haltiwanger, John C. & Syverson, Chad, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," IZA Discussion Papers 1705, Institute for the Study of Labor (IZA).
  17. James Costain & Antón Nákov, 2008. "Price adjustments in a general model of state-dependent pricing," Banco de Espa�a Working Papers 0824, Banco de Espa�a.
  18. John, A.Andrew & Wolman, Alexander L., 2008. "Steady-state equilibrium with state-dependent pricing," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 383-405, March.
  19. Daisuke Ikeda & Shinichi Nishioka, 2007. "Price Setting Behavior and Hazard Functions: Evidence from Japanese CPI Micro Data," Bank of Japan Working Paper Series 07-E-19, Bank of Japan.
  20. Peter J. Klenow & Oleksiy Kryvtsov, 2007. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Discussion Papers 07-007, Stanford Institute for Economic Policy Research.
  21. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  22. Mirko Wiederholt & Emanuel Moench & Bartosz Maćkowiak, 2009. "Sectoral Price Data and Models of Price Setting," 2009 Meeting Papers 666, Society for Economic Dynamics.
  23. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  24. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
  25. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
  26. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-77, November.
  27. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  28. Goffe, William L & Ferrier, Gary D & Rogers, John, 1992. "Simulated Annealing: An Initial Application in Econometrics," Computer Science in Economics & Management, Society for Computational Economics, vol. 5(2), pages 133-46, May.
  29. Michael Dotsey & Robert G. King, 2005. "Implications of state-dependent pricing for dynamic macroeconomic models," Working Papers 05-2, Federal Reserve Bank of Philadelphia.
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