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Firm-Specific Capital, Nominal Rigidities and the Business CycleDavid AltigFederal Reserve Banks - Federal Reserve Bank of Atlanta; Federal Reserve Bank of Cleveland; University of Chicago - Booth School of Business Jesper LindéSveriges Riksbank - Research Division Lawrence J. ChristianoNorthwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER) Martin EichenbaumNorthwestern University; National Bureau of Economic Research (NBER) October 18, 2006 FRB of Chicago Working Paper No. 2005-01 Riksbank Research Paper Series No. 15 Sveriges Riksbank Working Paper Series No. 176 FRB of Cleveland Working Paper No. 04-16 Abstract: Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our model is consistent with post-war U.S. evidence on inflation inertia even though firms re-optimize prices on average once every 1.5 quarters. The key feature of our model is that capital is firm-specific and predetermined within a period.
Number of Pages in PDF File: 54 Keywords: capital, inflation, price behavior JEL Classification: E3, E4, E5 working papers seriesDate posted: February 14, 2005 ; Last revised: March 9, 2009Suggested CitationContact Information
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