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Inflation Dynamics During the Financial Crisis

Simon Gilchrist (), Raphael Schoenle, Jae Sim and Egon Zakrajsek ()

No 2015-12, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

Abstract: Firms with limited internal liquidity significantly increased prices in 2008, while their liquidity unconstrained counterparts slashed prices. Differences in the firms' price-setting behavior were concentrated in sectors likely characterized by customer markets. We develop a model, in which firms face financial frictions, while setting prices in a customer-markets setting. Financial distortions create an incentive for firms to raise prices in response to adverse demand or financial shocks. These results reflect the firms' reaction to preserve internal liquidity and avoid accessing external finance, factors that strengthen the countercyclical behavior of markups and attenuate the response of inflation to fluctuations in output.

JEL-codes: E31 E32 E44 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2015-03-03
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Citations: View citations in EconPapers (13) Track citations by RSS feed

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http://www.federalreserve.gov/econresdata/feds/2015/files/2015012pap.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/FEDS.2015.012 http://dx.doi.org/10.17016/FEDS.2015.012 (application/pdf)

Related works:
Journal Article: Inflation Dynamics during the Financial Crisis (2017) Downloads
Working Paper: Inflation Dynamics During the Financial Crisis (2016) Downloads
Working Paper: Inflation dynamics during the financial crisis (2015) Downloads
Working Paper: Inflation Dynamics During the Financial Crisis (2014) Downloads
Working Paper: Inflation Dynamics During the Financial Crisis (2013) Downloads
Working Paper: Inflation Dynamics During the Financial Crisis (2013) Downloads
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