50 Pages Posted: 3 Feb 2005 Last revised: 27 Aug 2010
Date Written: January 2005
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 pre-determined within a period.
Suggested Citation: Suggested Citation
Altig, David and Christiano, Lawrence J. and Lindé, Jesper and Eichenbaum, Martin, Firm-Specific Capital, Nominal Rigidities and the Business Cycle (January 2005). NBER Working Paper No. w11034. Available at SSRN: https://ssrn.com/abstract=645276