Temporary Price Changes, Inflation Regimes, and the Propagation of Monetary Shocks

Fernando Alvarez and Francesco Lippi

American Economic Journal: Macroeconomics, 2020, vol. 12, issue 1, 104-52

Abstract: We present a sticky price model that features the coexistence of many price changes, most of which are temporary, with a modest flexibility of the aggregate price level. Stickiness is introduced in the form of a price plan, namely a set of two prices: either price can be charged at any moment but changing the plan entails a menu cost. We analytically solve for the optimal plan and for the aggregate output response to a monetary shock. We present evidence consistent with the model implications using scanner data, as well as Consumer Price Index data across a wide range of inflation rates.

JEL-codes: D22 E31 E52 L11 O11 O23 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Temporary Price Changes, Inflation Regimes and the Propagation of Monetary Shocks (2018)
Working Paper: Temporary Price Changes, Inflation Regimes and the Propagation of Monetary Shocks (2018)
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DOI: 10.1257/mac.20180383

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