Sveriges Riksbank Working Paper Series No. 176
54 Pages Posted: 14 Feb 2005 Last revised: 9 Mar 2009
Date Written: October 18, 2006
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.
Keywords: capital, inflation, price behavior
JEL Classification: E3, E4, E5
Suggested Citation: Suggested Citation
Altig, David and Lindé, Jesper and Christiano, Lawrence J. and Eichenbaum, Martin, Firm-Specific Capital, Nominal Rigidities and the Business Cycle (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. Available at SSRN: https://ssrn.com/abstract=666822 or http://dx.doi.org/10.2139/ssrn.666822