Paper #1532

Títol:

Menu costs, uncertainty cycles, and the propagation of nominal shocks

Autors:

Isaac Baley i J. Andrés Blanco

Data:

Juliol 2016

Resum:

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.

Paraules clau:

Menu costs, uncertainty, information frictions, monetary policy, hazard rates.

Codis JEL:

D8, E3, E5

Àrea de Recerca:

Macroeconomia i Economia Internacional

Publicat a:

American Economic Journal: Macroeconomics 2019, 11(1): 276–337
Amb el títol:
Firm Uncertainty Cycles and the Propagation of Nominal Shocks

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