Business Cycles with Pricing Cascades

Mishel Ghassibe and Anton Nakov

No 1525, Working Papers from Barcelona School of Economics

Abstract: Business cycles with pronounced inflation can have sectoral origins and often feature a growing share of price-adjusting firms. Rationalizing such phenomena re- quires enhancing our modeling toolkit. We do that by building a non-linear equilibrium multi-sector framework featuring a general input-output network and optimal decisions on the timing and size of price adjustments. The interaction of our ingredients creates equilibrium cascades: large movements in aggregates trigger price adjustment decisions on the extensive margin. Following demand shocks, such as monetary interventions, networks dampen cascades, thus slowing down price adjustment decisions and giving central banks substantial power to stimulate the real economy with limited inflationary consequences. In contrast, under supply shocks, networks amplify cascades, leading to fast increases in the frequency of repricing and large inflationary swings. Applied to Euro Area data, the interaction of networks with cascades allows to quantitatively match the surges in inflation and repricing frequency in the post-Covid era.

Keywords: large shocks; menu costs; networks; non-linear business cycles (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-mon and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/1525.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1525

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().