Implications Of State Dependent Pricing For Dynamic Macroeconomic Models

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Implications of State-Dependent Pricing for Dynamic Macroeconomic Models

Author : Michael Dotsey
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Implications of State-Dependent Pricing for Dynamic Macroeconomic Models by : Michael Dotsey

Download or read book Implications of State-Dependent Pricing for Dynamic Macroeconomic Models written by Michael Dotsey and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: State-dependent pricing (SDP) models treat the timing of price changes as a profit-maximizing choice, symmetrically with other decisions of firms. Using quantitative general equilibrium models that incorporate a "generalized (S,s) approach," the authors investigate the implications of SDP for topics in two major areas of macroeconomic research: the early 1990s SDP literature and more recent work on persistence mechanisms. First, they show that state-dependent pricing leads to unusual macroeconomic dynamics, which occur because of the timing of price adjustments chosen by firms as in the earlier literature. In particular, they display an example in which output responses peak at about a year, while inflation responses peak at about two years after the shock. Second, the authors examine whether the persistence-enhancing effects of two New Keynesian model features, namely, specific factor markets and variable elasticity demand curves, depend importantly on whether pricing is state dependent. In an SDP setting, they provide examples in which specific factor markets perversely work to lower persistence, while variable elasticity demand raises it.

Dynamics of the Price in a General Model of State-dependent Pricing

Author : James Costain
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (138 download)

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Book Synopsis Dynamics of the Price in a General Model of State-dependent Pricing by : James Costain

Download or read book Dynamics of the Price in a General Model of State-dependent Pricing written by James Costain and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the effects of monetary shocks in a DSGE model that allows for a general form of smoothly state-dependent pricing by firms. As in Dotsey, King, and Wolman (1999) and Caballero and Engel (2007), our setup is based on one fundamental property: firms are more likely to adjust their prices when doing so is more valuable. The exogenous timing (Calvo 1983) and fixed menu cost (Golosov and Lucas 2007) models are nested as limiting cases of our setup. Our model is calibrated to match the steady-state distribution of price adjustments in microdata; realism calls for firm-specific shocks. Computing a dynamic general equilibrium requires us to calculate how the distribution of prices and productivities evolves over time. We solve the model using the method of Reiter (2008), which is well-suited to this type of problem because it combines a fully nonlinear treatment of firm-level state variables with a linearization of the aggregate dynamics. We compute impulse responses to iid and autocorrelated money growth shocks, and decompose the inflation impact into 'intensive margin', 'extensive margin' and 'selection' components. Under our most successful calibration, increased money growth causes a persistent rise in inflation and output. The real effects are substantially larger if money growth is autocorrelated. In contrast, if we instead impose a fixed menu cost specification, money growth shocks cause a sharp spike in inflation (via the selection component) so that the real effects are small and short-lived, especially if money growth is iid. [Resumen de autor]

Essays on State Dependent Pricing Models

Author :
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (681 download)

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Book Synopsis Essays on State Dependent Pricing Models by :

Download or read book Essays on State Dependent Pricing Models written by and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: (Uncorrected OCR) Abstract of thesis entitled Essays on State Dependent Pricing Models submitted by Wai-Yip Alex HO for the degree of Master of Philosophy in Economics at The University of Hong Kong in August 2004 Abstract A dynamic general equilibrium model is developed to study the properties of state dependent pricing. In the first section, we analyze the long-run properties of the model and find that the effect of strategic complementarity in pricing decision between firms plays an important role in the model. When trend inflation rate exceeds some critical level, such strategic complementarity results in existence of multiple equilibria in the model (2 equilibria). As trend inflation increases, the difference between the two equilibria gets wider. We then investigate the number of possible equilibrium by looking at the best response function of firms over certain values of trend inflation rate. We find that there exist one more unstable equilibrium. We finally access the long run difference between the state dependent pricing model and the Calvo-pricing model and find that the effect of trend inflation on the model with state dependent pricing is much smaller than with Calvo-pricing. Under the same model specification and over the range of 1% to 6% trend inflation rate, we find that the effect of an increase in trend inflation with state dependent pricing is smaller than with Calvo-pricing. In the next section, we explore the properties of the impulse responses of the state-dependent pricing model and compare it with a time-dependent pricing model. State-dependent pricing models show asymmetries in responding to different signs of a temporary money supply growth rate shock. However, real effects of such monetary shocks are not increasing proportionally to the size of the shock. Interestingly, we find that if the size of the shock exceeds some critical level, the impulse response of the model to a positive shock converges to the impulse response to a negative sh.

Information-constrained State-dependent Pricing

Author : Michael Woodford
Publisher :
ISBN 13 :
Total Pages : 55 pages
Book Rating : 4.:/5 (611 download)

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Book Synopsis Information-constrained State-dependent Pricing by : Michael Woodford

Download or read book Information-constrained State-dependent Pricing written by Michael Woodford and published by . This book was released on 2008 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: I present a generalization of the standard (full-information) model of state-dependent pricing in which decisions about when to review a firm's existing price must be made on the basis of imprecise awareness of current market conditions. The imperfect information is endogenized using a variant of the theory of "rational inattention" proposed by Sims (1998, 2003, 2006). This results in a one-parameter family of models, indexed by the cost of information, which nests both the standard state-dependent pricing model and the Calvo model of price adjustment as limiting cases (corresponding to a zero information cost and an unboundedly large information cost respectively). For intermediate levels of the information cost, the model is equivalent to a "generalized Ss model" with a continuous "adjustment hazard" of the kind proposed by Caballero and Engel (1993a, 1993b), but provides an economic motivation for the hazard function and very specific predictions about its form. For high enough levels of the information cost, the Calvo model of price-setting is found to be a reasonable approximation to the exact equilibrium dynamics, except in the case of (infrequent) large shocks. When the model is calibrated to match the frequency and size distribution of price changes observed in microeconomic data sets, prices are found to be much less flexible than in a full-information state-dependent pricing model, and only about 20 percent more flexible than under a Calvo model with the same average frequency of price adjustment.

Information-constrained State-dependent Pricing

Author : Michael Woodford
Publisher :
ISBN 13 :
Total Pages : 55 pages
Book Rating : 4.:/5 (12 download)

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Book Synopsis Information-constrained State-dependent Pricing by : Michael Woodford

Download or read book Information-constrained State-dependent Pricing written by Michael Woodford and published by . This book was released on 2008 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: I present a generalization of the standard (full-information) model of state- dependent pricing in which decisions about when to review a firm's existing price must be made on the basis of imprecise awareness of current market conditions. The imperfect information is endogenized using a variant of the theory of "rational inattention" proposed by Sims (1998, 2003, 2006). This results in a one-parameter family of models, indexed by the cost of information, which nests both the standard state-dependent pricing model and the Calvo model of price adjustment as limiting cases (corresponding to a zero information cost and an unboundedly large information cost respectively). For intermediate levels of the information cost, the model is equivalent to a "generalized Ss model" with a continuous \adjustment hazard" of the kind proposed by Caballero and Engel (1993a, 1993b), but provides an economic motivation for the hazard function and very specific predictions about its form. For high enough levels of the information cost, the Calvo model of price-setting is found to be a reasonable approximation to the exact equilibrium dynamics, except in the case of (infrequent) large shocks. When the model is calibrated to match the frequency and size distribution of price changes observed in microeconomic data sets, prices are found to be much less flexible than in a full-information state-dependent pricing model, and only about 20 percent more flexible than under a Calvo model with the same average frequency of price adjustment.

Aggregate Dynamics with Heterogeneous Agents and State-Dependent Pricing

Author : Vladislav Damjanovic
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Aggregate Dynamics with Heterogeneous Agents and State-Dependent Pricing by : Vladislav Damjanovic

Download or read book Aggregate Dynamics with Heterogeneous Agents and State-Dependent Pricing written by Vladislav Damjanovic and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the consequences of (S, s) pricing rules in a dynamic economy with heterogeneous costs of price adjustment. We construct the stationary distributions for aggregate output and prices for our model economy. As a result of our assumption of heterogeneous costs we find that: (i) Some sectors change prices more regularly than others; (ii) Price changes are asynchronized (relative prices may be moving in opposite directions in different sectors); (iii) The economy may be more sensitive to demand shocks. There is broad empirical support for the predictions of the model.

The Endogenization of Government Behaviour in Macroeconomic Models

Author : Bern C.J. van Velthoven
Publisher : Springer
ISBN 13 :
Total Pages : 396 pages
Book Rating : 4.F/5 ( download)

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Book Synopsis The Endogenization of Government Behaviour in Macroeconomic Models by : Bern C.J. van Velthoven

Download or read book The Endogenization of Government Behaviour in Macroeconomic Models written by Bern C.J. van Velthoven and published by Springer. This book was released on 1989-03-14 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this book is to discuss the issues involved in and to make a contribution to the endogenization of public sector behaviour in macroeconomic models. To that end, the traditional theory of economic policy is critically reviewed as well as the existing literature on the impact of politics on (macro)economic policy. It is argued that Van Windens' interest function approach offers a more useful and valuable entry to the analysis of public sector decision making. It gives a coherent, yet condensed picture of the impact of the various social classes on economic policy. Using this approach an explanatory model of public sector decision making is developed, which yields behavioural equations for public expenditure, public employment and taxation that appear to be suited for insertion in a macroeconomic model. Application of the model to data for the Netherlands shows that the model can be provided with empirical support and that the power structure of society can be proxied by the relative numerical strengths of the economically active social classes. Taking the latter finding for granted, a fully closed model of politico-economic interaction is obtained. The model is further generalized to account explicitly for the social security system and its income transfers, and to allow for multi-period decision making on bond financed budget deficits/surpluses.

State Dependent Pricing and Business Cycle Asymmetries

Author : Michael B. Devereux
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis State Dependent Pricing and Business Cycle Asymmetries by : Michael B. Devereux

Download or read book State Dependent Pricing and Business Cycle Asymmetries written by Michael B. Devereux and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a tractable, dynamic general equilibrium model of state-dependent pricing and study the response of output and prices to monetary policy shocks. We find important nonlinearities in these responses. For empirically relevant shocks, this generates substantially different predictions from time-dependent pricing. We also find a distinct asymmetry with state-dependent pricing: Prices respond more to positive shocks than they do to negative shocks. This is due to a strategic linkage between firms in the incentive for price adjustment. Our state-dependent model can account for business cycle asymmetries in output of the magnitude found in empirical studies.

State-dependent Pricing and the Dynamics of Money and Output

Author : Andrew Caplin
Publisher :
ISBN 13 :
Total Pages : 26 pages
Book Rating : 4.:/5 (584 download)

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Book Synopsis State-dependent Pricing and the Dynamics of Money and Output by : Andrew Caplin

Download or read book State-dependent Pricing and the Dynamics of Money and Output written by Andrew Caplin and published by . This book was released on 1989 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Exchange-Rate Dynamics

Author : Martin D. D. Evans
Publisher : Princeton University Press
ISBN 13 : 1400838843
Total Pages : 561 pages
Book Rating : 4.4/5 (8 download)

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Book Synopsis Exchange-Rate Dynamics by : Martin D. D. Evans

Download or read book Exchange-Rate Dynamics written by Martin D. D. Evans and published by Princeton University Press. This book was released on 2011-03-14 with total page 561 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive and in-depth look at exchange-rate dynamics Variations in the foreign exchange market influence all aspects of the world economy, and understanding these dynamics is one of the great challenges of international economics. This book provides a new, comprehensive, and in-depth examination of the standard theories and latest research in exchange-rate economics. Covering a vast swath of theoretical and empirical work, the book explores established theories of exchange-rate determination using macroeconomic fundamentals, and presents unique microbased approaches that combine the insights of microstructure models with the macroeconomic forces driving currency trading. Macroeconomic models have long assumed that agents—households, firms, financial institutions, and central banks—all have the same information about the structure of the economy and therefore hold the same expectations and uncertainties regarding foreign currency returns. Microbased models, however, look at how heterogeneous information influences the trading decisions of agents and becomes embedded in exchange rates. Replicating key features of actual currency markets, these microbased models generate a rich array of empirical predictions concerning trading patterns and exchange-rate dynamics that are strongly supported by data. The models also show how changing macroeconomic conditions exert an influence on short-term exchange-rate dynamics via their impact on currency trading. Designed for graduate courses in international macroeconomics, international finance, and finance, and as a go-to reference for researchers in international economics, Exchange-Rate Dynamics guides readers through a range of literature on exchange-rate determination, offering fresh insights for further reading and research. Comprehensive and in-depth examination of the latest research in exchange-rate economics Outlines theoretical and empirical research across the spectrum of modeling approaches Presents new results on the importance of currency trading in exchange-rate determination Provides new perspectives on long-standing puzzles in exchange-rate economics End-of-chapter questions cement key ideas

Price Dispersion and Inflation

Author : Viacheslav Sheremirov
Publisher :
ISBN 13 :
Total Pages : 49 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Price Dispersion and Inflation by : Viacheslav Sheremirov

Download or read book Price Dispersion and Inflation written by Viacheslav Sheremirov and published by . This book was released on 2015 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: From a macroeconomic perspective, price rigidity is often perceived to be an important source of price dispersion, with significant implications for the dynamic properties of aggregate variables, welfare calculations, and the design of optimal policy. For instance, in standard New Keynesian models, the key cost of business cycles stems from the price dispersion resulting from firms' inability to adjust prices instantaneously. However, different macroeconomic models make conflicting predictions about the level of price dispersion, as well as about its dynamic properties and sensitivity to inflation. These contrasting predictions can help us to discriminate across alternative models. This paper examines the link between price dispersion and inflation, and the role of sales in this relationship.

Dynamics of the Price Distribution in a General Model of State-dependent Pricing

Author : James Costain
Publisher :
ISBN 13 :
Total Pages : 47 pages
Book Rating : 4.:/5 (434 download)

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Book Synopsis Dynamics of the Price Distribution in a General Model of State-dependent Pricing by : James Costain

Download or read book Dynamics of the Price Distribution in a General Model of State-dependent Pricing written by James Costain and published by . This book was released on 2008 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt:

State-dependent Or Time-dependent Pricing?

Author : Huw Dixon
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (116 download)

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Book Synopsis State-dependent Or Time-dependent Pricing? by : Huw Dixon

Download or read book State-dependent Or Time-dependent Pricing? written by Huw Dixon and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We take a monthly panel of German firms over the period 1980−2017 to examine the relative importance of time and state dependence in the decisions of firms to raise, lower or leave their price constant. In addition, we seek to estimate the relative importance of macroeconomic factors and firm-specific factors within state dependence. While price decreases can be well explained by time dependence alone, price increases are best predicted by the interaction of time-dependent and firm-specific state factors. Whilst on their own macroeconomic variables might seem important, once we add firm-specific variables the effects of macroeconomic variables become much smaller in magnitude. Our empirical results suggest that theoretical models should integrate both time and state dependence rather than developing the approaches separately. We also show that time dependence is better captured if we allow for different hazard functions for price increases and decreases.

Understanding Inflation and the Implications for Monetary Policy

Author : Jeff Fuhrer
Publisher : MIT Press
ISBN 13 : 026225820X
Total Pages : 517 pages
Book Rating : 4.2/5 (622 download)

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Book Synopsis Understanding Inflation and the Implications for Monetary Policy by : Jeff Fuhrer

Download or read book Understanding Inflation and the Implications for Monetary Policy written by Jeff Fuhrer and published by MIT Press. This book was released on 2009-09-11 with total page 517 pages. Available in PDF, EPUB and Kindle. Book excerpt: Current perspectives on the Phillips curve, a core macroeconomic concept that treats the relationship between inflation and unemployment. In 1958, economist A. W. Phillips published an article describing what he observed to be the inverse relationship between inflation and unemployment; subsequently, the “Phillips curve” became a central concept in macroeconomic analysis and policymaking. But today's Phillips curve is not the same as the original one from fifty years ago; the economy, our understanding of price setting behavior, the determinants of inflation, and the role of monetary policy have evolved significantly since then. In this book, some of the top economists working today reexamine the theoretical and empirical validity of the Phillips curve in its more recent specifications. The contributors consider such questions as what economists have learned about price and wage setting and inflation expectations that would improve the way we use and formulate the Phillips curve, what the Phillips curve approach can teach us about inflation dynamics, and how these lessons can be applied to improving the conduct of monetary policy. Contributors Lawrence Ball, Ben Bernanke, Oliver Blanchard, V. V. Chari, William T. Dickens, Stanley Fischer, Jeff Fuhrer, Jordi Gali, Michael T. Kiley, Robert G. King, Donald L. Kohn, Yolanda K. Kodrzycki, Jane Sneddon Little, Bartisz Mackowiak, N. Gregory Mankiw, Virgiliu Midrigan, Giovanni P. Olivei, Athanasios Orphanides, Adrian R. Pagan, Christopher A. Pissarides, Lucrezia Reichlin, Paul A. Samuelson, Christopher A. Sims, Frank R. Smets, Robert M. Solow, Jürgen Stark, James H. Stock, Lars E. O. Svensson, John B. Taylor, Mark W. Watson

Price Rigidity

Author : Emi Nakamura
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (829 download)

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Book Synopsis Price Rigidity by : Emi Nakamura

Download or read book Price Rigidity written by Emi Nakamura and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We review recent evidence on price rigidity from the macroeconomics literature, and discuss how this evidence is used to inform macroeconomic modeling. Sluggish price adjustment is a leading explanation for large effects of demand shocks on output and, in particular, the effects of monetary policy on output. A recent influx of data on individual prices has greatly deepened macroeconomists' understanding of individual price dynamics. However, the analysis of these new data raise a host of new empirical issues that have not traditionally been confronted by parsimonious macroeconomic models of price-setting. Simple statistics such as the frequency of price change may be misleading guides to the flexibility of the aggregate price level in a setting where temporary sales, product-churning, cross-sectional heterogeneity, and large idiosyncratic price movements play an important role. We discuss empirical evidence on these and other important features of micro price adjustment and ask how they affect the sluggishness of aggregate price adjustment and the economy's response to demand shocks.

Monetary Policy, Inflation, and the Business Cycle

Author : Jordi Galí
Publisher : Princeton University Press
ISBN 13 : 0691164789
Total Pages : 296 pages
Book Rating : 4.6/5 (911 download)

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Book Synopsis Monetary Policy, Inflation, and the Business Cycle by : Jordi Galí

Download or read book Monetary Policy, Inflation, and the Business Cycle written by Jordi Galí and published by Princeton University Press. This book was released on 2015-06-09 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: The classic introduction to the New Keynesian economic model This revised second edition of Monetary Policy, Inflation, and the Business Cycle provides a rigorous graduate-level introduction to the New Keynesian framework and its applications to monetary policy. The New Keynesian framework is the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. A backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, the framework provides the theoretical underpinnings for the price stability–oriented strategies adopted by most central banks in the industrialized world. Using a canonical version of the New Keynesian model as a reference, Jordi Galí explores various issues pertaining to monetary policy's design, including optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the effects on monetary policy are addressed, with emphasis on the desirability of inflation-targeting policies. New material includes the zero lower bound on nominal interest rates and an analysis of unemployment’s significance for monetary policy. The most up-to-date introduction to the New Keynesian framework available A single benchmark model used throughout New materials and exercises included An ideal resource for graduate students, researchers, and market analysts

The Elgar Companion to Recent Economic Methodology

Author : J. B. Davis
Publisher : Edward Elgar Publishing
ISBN 13 : 085793807X
Total Pages : 553 pages
Book Rating : 4.8/5 (579 download)

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Book Synopsis The Elgar Companion to Recent Economic Methodology by : J. B. Davis

Download or read book The Elgar Companion to Recent Economic Methodology written by J. B. Davis and published by Edward Elgar Publishing. This book was released on 2011-01-01 with total page 553 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic methodology has traditionally been associated with logical positivism in the vein of Milton Friedman, Karl Popper, Imre Lakatos and Thomas Kuhn. However, the emergence and proliferation of new research programs in economics have stimulated many novel developments in economic methodology. This impressive Companion critically examines these advances in methodological thinking, particularly those that are associated with the new research programs which challenge standard economic methodology. Bringing together a collection of leading contributors to this new methodological thinking, the authors explain how it differs from the past and point towards further concerns and future issues. The recent research programs explored include behavioral and experimental economics, neuroeconomics, new welfare theory, happiness and subjective well-being research, geographical economics, complexity and computational economics, agent-based modeling, evolutionary thinking, macroeconomics and Keynesianism after the crisis, and new thinking about the status of the economics profession and the role of the media in economics. This important compendium will prove invaluable for researchers and postgraduate students of economic methodology and the philosophy of economics. Practitioners in the vanguard of new economic thinking will also find plenty of useful information in this path-breaking book.