Price Setting With Menu Cost for Multiproduct Firms
By Fernando Alvarez, Francesco Lippi. 2014
115 citations recorded by the source corpus.
We model the decisions of a multiproduct firm that faces a fixed “menu” cost: once it is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm's decisions in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The size of the output response and its duration both increase with the number of products; they more than double as the number of products goes from 1 to 10, quickly converging to the response of Taylor's staggered price model.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/929347a1eec85350acdb1fc0940df76cdd9e8ead
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In Economics and Econometrics
- Francesco Lippi
- Fernando Alvarez
- Hervé le Bihan
- A. Cukierman
- Hanno Lustig
- Alberto Cavallo
- George-Marios Angeletos
- Lars Peter Hansen
Citations in the corpus
- Scraped Data and Sticky Prices (2016, unknown): “Some examples are Midrigan (2011), Gorodnichenko (2008), Woodford (2009), Bonomo, Carvalho, and Garcia (2011), Costain and Nakov (2011), and Alvarez and Lippi (2014). For previous discussions of measurement error in the literature, see Campbell and Eden (2014), Cavallo and Rigobon (2011) , and Eiche”
- Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination (2016, unknown): “Consider, in particular, Alvarez and Lippi (2014) and Alvarez, Lippi and Paciello (2015). These papers use models in which firms update their information sets infrequently because they have to pay a fixed cost whenever they do so. Because the updating is asynchronized, this implies that at any given”
- The real effects of monetary shocks in sticky price models. A sufficient statistic approach (2016, methodology): “(39) This proposition extends the result of Proposition 8 in Alvarez and Lippi (2014) to the case of ` ≡ λ/N(∆pi) > 0.30 The proof proceeds by verification.”