Nonlinear Inflation Dynamics in Menu Cost Economies

Andres Blanco, Corina Boar (), Callum Jones and Virgiliu Midrigan

No 2024-005, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Canonical menu cost models, when parameterized to match the micro-price data, cannot reproduce the extent to which the fraction of price changes increases with inflation. They also predict implausibly large menu costs and misallocation in the presence of strategic complementarities. We resolve these shortcomings by extending the multiproduct menu cost model along two dimensions. First, the products sold by a firm are imperfect substitutes. Second, strategic complementarities are at the firm, not product level. In contrast to standard models, the fraction of price changes increases rapidly with the size of monetary shocks, so our model implies a non-linear Phillips curve.

Keywords: Menu costs; Inflation; Phillips curve (search for similar items in EconPapers)
Pages: 69 p.
Date: 2024-02-02
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2024005pap.pdf (application/pdf)

Related works:
Working Paper: Nonlinear Inflation Dynamics in Menu Cost Economies (2024)
Working Paper: Non-Linear Inflation Dynamics in Menu Cost Economies (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-05

DOI: 10.17016/FEDS.2024.005

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().