Reset Price Inflation and Monetary Policy

Engin Kara

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: Bils, Klenow and Malin (2009) recently constructed an empirical measure of reset price in.ation (i.e. the rate of change of all ‘desired’ prices) for the US economy, by using the micro-data underpinning the CPI and evaluated whether the existing pricing models can explain both the observed reset inflation and aggregate inflation. They found that time-dependent models and state-dependent models are both inadequate in this respect. This paper presents a model that tracks the data on reset inflation perfectly well. A main difference between the model in this paper and those in Bils et al. (2009) is that the model in this paper properly accounts for the heterogeneity in contract lengths we observe in the data.

Keywords: DSGE models; reset inflation (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-09
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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:10/619

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