Endogenous Price Stickiness and Business Cycle Persistence

Michael Kiley

No 1996-23, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Both imperfect information and sticky prices allow nominal shocks to act as business cycle impulses, but only sticky prices propagate the real effects of nominal shocks. A simple model of imperfect information and sticky prices developed herein indicates that high rates of inflation lead to less price stickiness, and hence less persistent output fluctuations. Estimation of the model, as well as simple autocorrelations of real output, indicate that indeed output fluctuations are less persistent in high inflation economies. These results lend little support to models in which output persistence is explained through persistent real shocks, capital accumulation, or adjustment costs.

Keywords: Output persistence; sticky prices; menu costs (search for similar items in EconPapers)
Pages: 39 pages
Date: 2019-12-04
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Endogenous Price Stickiness and Business Cycle Persistence (2000)
Working Paper: Endogenous price stickiness and business cycle persistence (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:1996-23

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