Please use this identifier to cite or link to this item:
http://hdl.handle.net/10071/29191
Author(s): | Gasteiger, E. Grimaud, A. |
Date: | 2023 |
Title: | Price setting frequency and the Phillips curve |
Journal title: | European Economic Review |
Volume: | 158 |
Reference: | Gasteiger, E., & Grimaud, A. (2023). Price setting frequency and the Phillips curve. European Economic Review, 158, 104535. https://dx.doi.org/10.1016/j.euroecorev.2023.104535 |
ISSN: | 0014-2921 |
DOI (Digital Object Identifier): | 10.1016/j.euroecorev.2023.104535 |
Keywords: | Price setting Inflation dynamics Monetary policy Phillips curve |
Abstract: | We develop a New Keynesian (NK) model with endogenous price setting frequency. Whether a firm updates its price is a discrete choice: when expected benefits outweigh expected costs, prices are reset optimally. The model gives rise to a non-linear Phillips curve as prices are more flexible during demand-driven expansions and less so during demand-driven recessions. Monetary policy can have substantial real effects despite the model having a state-dependent pricing component. Our quantitative analysis shows that contrary to the standard NK model, the assumed price setting behavior: (i) is consistent with micro data on price setting frequency; (ii) generates a direct effect of the time-varying price setting frequency on inflation; (iii) creates time-variation in the Phillips curve slope that explains shifts in the Phillips curve associated with different historical episodes; (iv) explains inflation dynamics without relying on implausible high cost-push shocks and nominal rigidities inconsistent with micro data; (v) reconciles the NK model with observed inflation moments. |
Peerreviewed: | yes |
Access type: | Open Access |
Appears in Collections: | BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica |
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article_96966.pdf | 1,37 MB | Adobe PDF | View/Open |
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