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Monetary Shocks in a Model with Inattentive Producers

Fernando Alvarez, Francesco Lippi and Luigi Paciello ()

No 9228, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a model in which prices respond slowly to shocks because firms must pay a fixed cost to observe the determinants of the profit maximizing price, as pioneered by Caballero (1989) and Reis (2006). We extend their analysis to the case of random tran- sitory variation in the firm’s observation cost and characterize the mapping from the distribution of observation cost to the distribution of the times between consecutive re- views/price adjustments of a firm. We aggregate a continuum of firms and characterize analytically the cross-sectional distribution of the duration of reviews/prices. We establish the dependence of the real effect of a monetary shock on the distribution of price durations and hence on the distribution of observation costs and discuss applications.

Keywords: impulse responses.; inattentiveness; monetary shocks; observation costs (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2012-11
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Related works:
Journal Article: Monetary Shocks in Models with Inattentive Producers (2016) Downloads
Working Paper: Monetary Shocks in Models with Inattentive Producers (2015) Downloads
Working Paper: Monetary Shocks in Models with Inattentive Producers (2014) Downloads
Working Paper: Monetary Shocks in a Model with Inattentive Producers (2012) Downloads
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