Working Paper: NBER ID: w10187
Authors: Mikhail Golosov; Robert E. Lucas Jr.
Abstract: This paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation. Sellers can change price only by incurring a real menu cost.' We calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new U.S. data set of individual prices due to Klenow and Kryvtsov. The prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with the Israeli evidence obtained by Lach and Tsiddon. The model is also used to conduct numerical experiments on the economy's response to credible and incredible disinflations and other shocks. In none of the simulations we conducted did monetary shocks induce large or persistent real responses.
Keywords: No keywords provided
JEL Codes: E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| menu costs (E64) | price stickiness (L11) |
| price stickiness (L11) | small real effects from large disinflations (E65) |
| idiosyncratic shocks (D89) | pricing behavior (D40) |
| inflation (E31) | output (C67) |
| monetary shocks (E39) | real responses in the economy (E39) |
| credible disinflations (E31) | economy's response (E20) |
| noncredible disinflations (E31) | economy's response (E20) |
| variance of aggregate output (E23) | observed in recent U.S. data (C80) |