An Organizational Structure Approach to Price Setting and Monetary Policy

Diogo Guillen and Victor Monteiro

No 638, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We build a general equilibrium setup that embeds the organizational structure and its misalignment of incentives in the firm’s pricing decision. On the firm level, such a mechanism endogenously generates discrete prices and explains price stickiness. On the macro level, we derive a Phillips curve where the incentive-provision and the number of divisions of the firms drive its slope. Empirically, we take the model into a novel Brazilian retail daily database to estimate the parameters of the theoretical mechanism. Our model matches price-setting facts, such as the length of price spell, heterogeneity of price distribution, existence of small changes, and sales behavior.

Date: 2025-12
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