Delivering Endogenous Inertia in Prices and Output

Alok Johri

Department of Economics Working Papers from McMaster University

Abstract: This paper presents a DGE model in which aggregate price level inertia is generated endogenously by the optimizing behaviour of price setting ?rms. All the usual sources of inertia are absent here ie., all fi?rms are simultaneously free to change their price once every period and face no adjustment costs in doing so. Despite this, the model generates persistent movements in aggregate output and in?ation in response to a nominal shock. Two modi?cations of a standard one-quarter pre-set price model deliver these results: learning-by-doing and habit formation in leisure.

Keywords: Endogenous price stickiness; Business Cycles; Inflation; Nominal rigidities; Learning-by-doing; Habit formation; Propagation mechanisms; Persistence. (search for similar items in EconPapers)
JEL-codes: E3 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2007-08
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Delivering Endogenous Inertia in Prices and Output (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2007-04

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