The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia

Carlos Carvalho

No 9, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: This paper analyzes the implications of heterogeneity in price setting for both price and inflation inertia. Standard models based on Taylor- or Calvo-style price setting usually assume ex-ante identical firms, while Calvo's approach implies only ex-post heterogeneity. While it is known that these models have different implications in terms of the dynamic effects of monetary shocks, the role of heterogeneity has not yet been properly explored. In a simple framework, this paper provides analytical results which suggest that ex-ante heterogeneity should have a larger role in models which attempt to understand price and inflation inertia, particularly in low inflation environments

Keywords: heterogeneity; price-setting; inflation inertia (search for similar items in EconPapers)
JEL-codes: E30 E52 (search for similar items in EconPapers)
Date: 2004-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:latm04:9

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