Menu costs, uncertainty cycles, and the propagation of nominal shocks
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- dc.contributor.author Baley, Isaac
- dc.contributor.author Blanco, J. Andrés
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2020-05-25T09:26:49Z
- dc.date.available 2020-05-25T09:26:49Z
- dc.date.issued 2016-07-01
- dc.date.modified 2020-05-25T09:24:58Z
- dc.description.abstract Nominal shocks have long-lasting effects on real economic activity, beyond those implied by standard models that target the average frequency of price adjustment in micro data. This paper develops a price-setting model that explains this gap through the interplay of menu costs and uncertainty about idiosyncratic productivity. Uncertainty arises from firms' inability to distinguish between permanent and transitory productivity changes. Upon the arrival of a productivity shock, a firm's uncertainty spikes up and then fades with learning until the next shock arrives. These uncertainty cycles, when paired with menu costs, generate recurrent episodes of high adjustment frequency followed by episodes of low adjustment frequency at the firm level. A decreasing hazard rate of price adjustment results, as in the data. Taking into account this pricing behavior amplifies the persistence and reduces the pass-through of nominal shocks.
- dc.format.mimetype application/pdf*
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1532
- dc.identifier.citation American Economic Journal: Macroeconomics 2019, 11(1): 276–337
- dc.identifier.uri http://hdl.handle.net/10230/27211
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 1532
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword menu costs
- dc.subject.keyword uncertainty
- dc.subject.keyword information frictions
- dc.subject.keyword monetary policy
- dc.subject.keyword hazard rates.
- dc.subject.keyword Macroeconomics and International Economics
- dc.title Menu costs, uncertainty cycles, and the propagation of nominal shocks
- dc.title.alternative Firm Uncertainty Cycles and the Propagation of Nominal Shocks
- dc.type info:eu-repo/semantics/workingPaper