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Keywords:Price levels 

Working Paper
A correspondence principle for the uniqueness of the price level in rational expectations models

Working Papers in Applied Economic Theory , Paper 101

Journal Article
Recent price developments

Federal Reserve Bulletin , Issue Nov , Pages 1855-1866

Journal Article
Are money growth and inflation still related?

Despite the long history and the substantial evidence supporting the conclusion that persistent changes in the price level are associated with changes in the money supply, the predicted association remains dis-puted. Is it debated because the empirical relationship holds over time periods so long that it may be uninformative for practitioners and policymakers, who are more concerned about inflation next month or next year? If it takes a generation for the relationship between money growth and inflation to become apparent, it would not be surprising that central bankers and practitioners put ...
Economic Review , Volume 84 , Issue Q2 , Pages 32-43

Working Paper
Price setting, price dispersion, and the value of money - or - The law of two prices

We study models that combine search, monetary exchange, price posting by sellers, and buyers with preferences that differ across random meetings - say, because sellers in different meetings produce different varieties of the same good. We show how these features interact to influence the price level (i.e., the value of money) and price dispersion. First, price-posting equilibria exist with valued fiat currency, which is not true in the standard model. Second, although both are possible, price dispersion is more common than a single price. Third, perhaps surprisingly, we prove generically ...
Working Papers (Old Series) , Paper 0209

Working Paper
Optimal monetary policy in a two country model with firm-level heterogeneity

This paper studies non-cooperative monetary policy in a two country general equilibrium model where international economic integration is endogenised through firm-level heterogeneity and monopolistic competition. Economic integration between countries is a source of policy competition, generating higher long-run inflation, and increased gains from monetary cooperation.
Globalization Institute Working Papers , Paper 104

Working Paper
Quality pricing-to-market

We document that in the European car industry, exchange rate pass-through is larger for low than for high quality cars. To rationalize this pattern, we develop a model of quality pricing and international trade based on the preferences of Mussa and Rosen (1978). Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. Each firm produces a unique quality of the good and enjoys local market power, which depends on the prices and qualities of its closest competitors. The market power of a firm depends on the prices and qualities of its direct ...
Globalization Institute Working Papers , Paper 125

Working Paper
The effect of commodity price shocks on underlying inflation: the role of central bank credibility

This paper seeks to document and explain the effect of a commodity price shock on underlying core inflation, and how that effect changes both across time and across countries. Impulse responses derived from a structural VAR model show that across many countries there was a break in the response of core inflation to a commodity price shock. In an earlier period, a shock to commodity prices would lead to a large and significant increase in core inflation, but in later periods, the effect was insignificant. ; To explain this, we construct a large-scale DSGE model with both headline and core ...
Globalization Institute Working Papers , Paper 134

Working Paper
International trade price stickiness and exchange rate pass-through in micro data: a case study on U.S.–China trade

Price-setting behavior of exporters and exchange rate pass-through (ERPT) are crucial issues in international macroeconomics. This paper studies these topics, using a novel dataset of goods-level US-China trade prices collected by the US Bureau of Labor Statistics. We document that the duration of U.S.?China trade prices has declined almost 30 percent since China began appreciating its currency in 2005. A benchmark menu cost model that is calibrated to the data can replicate the documented decrease in price stickiness. We also estimate ERPT of RMB appreciation into U.S. import prices between ...
Globalization Institute Working Papers , Paper 135

Working Paper
Why are goods and services more expensive in rich countries? demand complementarities and cross-country price differences

Empirical studies show that tradable consumption goods are more expensive in rich countries. This paper proposes a simple yet novel explanation for this apparent failure of the law of one price: Consumers? utility from tradable goods depends on their consumption of complementary goods and services. Monopolistically competitive firms charge higher prices in countries with more complementary goods and services because consumer demand is less elastic there. The paper embeds this explanation within a static Krugman (1980)-style model of international trade featuring differentiated tradable goods. ...
Globalization Institute Working Papers , Paper 156

Working Paper
The liquidity trap, the real balance effect, and the Friedman rule

This paper studies the behavior of the economy and the efficacy of monetary policy under zero nominal interest rates, using a model with population growth that nests, as a special case, a more conventional specification in which there is a single infinitely lived representative agent. The paper shows that with a growing population, monetary policy has distributional effects that give rise to a real balance effect, thereby eliminating the liquidity trap. These same distributional effects, however, can also work to make many agents much worse off under zero nominal interest rates than they are ...
Working Papers , Paper 05-3

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