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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) January 2005 CEPR Discussion Paper No. 4858 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 that resolves this apparent micro/macro conflict. Our model is consistent with post-war US 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 pre-determined within a period.
Number of Pages in PDF File: 52 JEL Classification: E30, E40, E50 working papers seriesDate posted: May 11, 2005Suggested CitationContact Information
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