Inflation Dynamics during the Financial Crisis

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

American Economic Review, 2017, vol. 107, issue 3, 785-823

Abstract: Using a novel dataset, which merges good-level prices underlying the PPI with the respondents' balance sheets, we show that liquidity constrained firms increased prices in 2008, while their unconstrained counterparts cut prices. We develop a model in which firms face financial frictions while setting prices in customer markets. Financial distortions create an incentive for firms to raise prices in response to adverse financial or demand shocks. This reaction reflects the firms' decisions 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.

JEL-codes: E31 E32 E44 G01 G32 L11 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20150248
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Citations: View citations in EconPapers (181)

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Related works:
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 (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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