Inflation and Real Activity with Firm-Level Productivity Shocks

46 Pages Posted: 16 Sep 2013

See all articles by Michael Dotsey

Michael Dotsey

Federal Reserve Bank of Philadelphia

Robert G. King

Boston University - Department of Economics; Federal Reserve Bank of Richmond - Research Department; National Bureau of Economic Research (NBER)

Alexander L. Wolman

Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: September 2013

Abstract

In the last ten years there has been an explosion of empirical work examining price setting behavior at the micro level. The work has in turn challenged existing macro models that attempt to explain monetary nonneutrality, because these models are generally at odds with much of the micro price data. In response, economists have developed a second generation of sticky-price models that are state dependent and that include both fixed costs of price adjustment and idiosyncratic shocks. Nonetheless, some ambiguity remains about the extent of monetary nonneutrality that can be attributed to costly price adjustment. Our paper takes a step toward eliminating that ambiguity.

Keywords: Pricing

Suggested Citation

Dotsey, Michael and King, Robert G. and Wolman, Alexander L., Inflation and Real Activity with Firm-Level Productivity Shocks (September 2013). FRB of Philadelphia Working Paper No. 13-35. Available at SSRN: https://ssrn.com/abstract=2326525 or http://dx.doi.org/10.2139/ssrn.2326525

Michael Dotsey (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Robert G. King

Boston University - Department of Economics ( email )

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Federal Reserve Bank of Richmond - Research Department

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Alexander L. Wolman

Federal Reserve Bank of Richmond ( email )

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Richmond, VA 23261
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