Temporary Price Changes, Inflation Regimes, and the Propagation of Monetary Shocks
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We present a sticky price model that features the coexistence of many price changes, most of which are temporary, with a modest flexibility of the aggregate price level. Stickiness is introduced in the form of a price plan, namely a set of two prices: either price can be charged at any moment but changing the plan entails a menu cost. We analytically solve for the optimal plan and for the aggregate output response to a monetary shock. We present evidence consistent with the model implications using scanner data, as well as Consumer Price Index data across a wide range of inflation rates. (JEL D22, E31, E52, L11, O11, O23)
2014 ◽
Vol 6
(2)
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pp. 137-155
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2021 ◽
Vol 2
(6)
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pp. 1-6
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1977 ◽
Vol 6
(1)
◽
pp. 93-106
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