Inflation dynamics during the financial crisis

Simon Gilchrist, Raphael Schoenle, Jae Sim and Egon Zakrajšek ()

No 2015-4, FRB Atlanta CQER Working Paper from Federal Reserve Bank of Atlanta

Abstract: Firms with limited internal liquidity significantly increased prices in 2008, while their liquidity unconstrained counterparts slashed prices. Differences in the firms' price-setting behavior were concentrated in sectors likely characterized by customer markets. The authors develop a model in which firms face financial frictions while setting prices in a customer-markets setting. Financial distortions create an incentive for firms to raise prices in response to adverse demand or financial shocks. These results reflect the firms' reaction to preserve internal liquidity and avoid accessing external finance, factors that strengthen the countercyclical behavior of markups and attenuate the response of inflation to fluctuations in output.

Keywords: missing deflation; sticky customer base; costly external finance; financial shocks; cost channel; inflation-output tradeoff (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E51 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2015-11-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Related works:
Journal Article: Inflation Dynamics during the Financial Crisis (2017)
Working Paper: Inflation Dynamics During the Financial Crisis (2016)
Working Paper: Inflation Dynamics During the Financial Crisis (2015)
Working Paper: Inflation Dynamics During the Financial Crisis (2014)
Working Paper: Inflation Dynamics During the Financial Crisis (2013)
Working Paper: Inflation Dynamics During the Financial Crisis (2013)
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