Understanding and Modelling Reset Price Inflation

Engin Kara

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

Abstract: Bils, Klenow and Malin (forthcoming) (BKM) constructed a measure of reset price inflation (i.e. the rate of change of all "desired" prices) for the US. They argue that the existing pricing models cannot explain the observed reset inflation and aggregate inflation. In this paper, I show that a model that can account for the heterogeneity in contract lengths we observe in the data matches the data on both series. I also show that the BKM measure of reset inflation is a flawed measure of the concept they wish to measure and can be quite misleading.

Keywords: DSGE models; reset inflation; GE; Calvo; price-level targeting. (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-11
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:11/623

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