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Costly information, planning complementarities and the Phillips Curve
Standard sticky information pricing models successfully capture the sluggish movement of aggregate prices in response to monetary policy shocks but fail at matching the magnitude and frequency of price changes at the micro level. This paper shows that in a setting where firms choose when to acquire costly information about different types of shocks, strategic complementarities in pricing generate planning complementarities. This results in firms optimally updating their information about monetary policy shocks less frequently than about idiosyncratic shocks. When calibrated to match frequent ...
Working Paper
Firm Size, Heterogeneous Strategic Complementarities, and Real Rigidity
Recent research indicates substantial differences in price-setting behavior between small and large firms, as only large firms exhibit strategic complementarities in price setting. Using firm survey data, we present new evidence that the cost-price pass-through decreases with firm size. To examine the implications for inflation dynamics, we develop a DSGE model that features heterogeneous complementarities across firm size. While standard DSGE models with homogeneous firms generate real rigidity in relative prices, there is little such rigidity in our model. Heterogeneity in strategic ...
Working Paper
What Can Measured Beliefs Tell Us About Monetary Non-Neutrality?
This paper studies how measured beliefs can be used to identify monetary non-neutrality. In a general equilibrium model with both nominal rigidities and endogenous information acquisition, we analytically characterize firms’ optimal dynamic information policies and how their beliefs affect monetary non-neutrality. We then show that data on the cross-sectional distributions of uncertainty and pricing durations are both necessary and sufficient to identify monetary non-neutrality. Finally, implementing our approach in New Zealand survey data, we find that informational frictions approximately ...
Working Paper
The Price-Change Statistics We’ve Weighted For
The real effects of monetary policy depend on price stickiness. Existing studies that measure aggregate stickiness using US consumer price index microdata hold the consumption basket fixed. This yields a lower level of stickiness in 2024 compared with 1978. We show instead that stickiness is unchanged. Although individual products now change prices more frequently, the effect is largely offset by shifts in consumer spending, notably toward services with stickier prices. These consumption-basket shifts reduce the estimated decline in monetary non neutrality by 25 percentage points, suggesting ...
Working Paper
Firm Size, Heterogeneous Strategic Complementarities, and Real Rigidity
Recent research finds that only large firms exhibit strategic complementarities in price setting. Using firm survey data, we show that cost pass-through decreases significantly with firm size. To examine the implications for inflation dynamics, we develop a DSGE model that features heterogeneous complementarities across firm size. While standard DSGE models with homogeneous firms generate real rigidity in relative prices, such rigidity is much weaker in our model. Large firms that exhibit complementarities align their prices with those of small firms that more fully pass through costs. Our ...