Non-Linear Inflation Dynamics in Menu Cost Economies

Andres Blanco, Corina Boar, Callum Jones and Virgiliu Midrigan

No 32094, NBER Working Papers from National Bureau of Economic Research, Inc

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 multi-product 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.

JEL-codes: E0 E30 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-mon
Note: EFG ME
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Working Paper: Nonlinear Inflation Dynamics in Menu Cost Economies (2024)
Working Paper: Nonlinear Inflation Dynamics in Menu Cost Economies (2024)
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