Working Paper: NBER ID: w28464
Authors: 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.
Keywords: No keywords provided
JEL Codes: E5; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary shock (E49) | Changes in the distribution of firm prices (L11) |
| Changes in the distribution of firm prices (L11) | Dynamics of output and other economic variables (E23) |
| Aggregate shock (E10) | Displacement of the invariant distribution of firm prices (D39) |
| Displacement of the invariant distribution of firm prices (D39) | Dynamics of output and other economic variables (E23) |
| Eigenvalue-eigenfunction representation (C29) | Comprehensive analysis of impulse response functions (C22) |
| Entire profile of the IRF (F50) | Enhanced understanding of the propagation mechanisms of shocks (E32) |