The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia

Carlos Carvalho ()

Macroeconomics from EconWPA

Abstract: This paper analyzes the implications of heterogeneity in price setting for the real effects of monetary shocks. Starting from otherwise standard sticky price and sticky information models, I introduce ex-ante heterogeneity in terms of price setting frictions, and compare the resulting dynamics with those of identical firms economies under alternative calibrations. Both the qualitative and the quantitative results show that heterogeneity leads monetary shocks to have substantially larger and more persistent real effects. In particular, reproducing the dynamics of a truly heterogeneous economy with a model based on identical firms requires unrealistically large degrees of price setting frictions.

Keywords: Heterogeneity; Price-setting; Inflation Inertia (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2004-12-25
Note: Type of Document - pdf; pages: 32
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http://129.3.20.41/eps/mac/papers/0412/0412013.pdf (application/pdf)

Related works:
Working Paper: The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia (2004)
Working Paper: The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia (2005)
Working Paper: The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia (2005)
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