Inflation and Real Activity with Firm Level Productivity Shocks

32 Pages Posted: 23 Jul 2018 Last revised: 29 Apr 2020

See all articles by Michael Dotsey

Michael Dotsey

Federal Reserve Bank of Philadelphia

Alexander L. Wolman

Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: 2018-07-19

Abstract

[REVISED AUG 2019]In the last fifteen 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. A second generation of models, with fixed costs of price adjustment and idiosyncratic shocks, is more consistent with this micro data. Nonetheless, ambiguity remains about the extent of nonneutrality that can be attributed to costly price adjustment. Using a model that matches many features of the micro data, our paper takes a step toward eliminating that ambiguity, at the same time highlighting the challenges that remain

Keywords: Inflation, microeconomics

Suggested Citation

Dotsey, Michael and Wolman, Alexander L., Inflation and Real Activity with Firm Level Productivity Shocks (2018-07-19). FRB of Philadelphia Working Paper No. 18-19. Available at SSRN: https://ssrn.com/abstract=3217540 or http://dx.doi.org/10.21799/frbp.wp.2018.19

Michael Dotsey (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Alexander L. Wolman

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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