State-dependent pricing and the non-neutrality of money

David Demery

doi:10.1016/j.jmacro.2012.05.003

State-dependent pricing and the non-neutrality of money

David Demery

School of Economics

Research output: Contribution to journal › Article (Academic Journal) › peer-review

2 Citations (Scopus)

221 Downloads (Pure)

Abstract

Golosov and Lucas (2007) have challenged the view that infrequent price adjustments by firms explain why money has aggregate real output effects. The basis of their challenge is the ‘selection effect’ – re-setting firms are not selected at random, they are those firms whose prices are furthest from the optimal reset price. Because of this the aggregate price level is sufficiently flexible for monetary neutrality. In this paper I add price review costs to an otherwise standard Golosov and Lucas model. This weakens the selection effect and restores monetary non-neutrality.

Translated title of the contribution	State-dependent pricing and the non-neutrality of money
Original language	English
Pages (from-to)	933–944
Number of pages	12
Journal	Journal of Macroeconomics
Volume	34
Issue number	4
Early online date	12 Jun 2012
DOIs	https://doi.org/10.1016/j.jmacro.2012.05.003
Publication status	Published - Dec 2012

Keywords

Menu-cost
Information costs
Non-neutrality of money
State-dependent pricing
Time-dependent pricing
Inattention

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10.1016/j.jmacro.2012.05.003

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This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Elsevier at http://www.sciencedirect.com/science/article/pii/S0164070412000547. Please refer to any applicable terms of use of the publisher.
Accepted author manuscript, 455 KBLicence: CC BY-NC-ND

Cite this

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AB - Golosov and Lucas (2007) have challenged the view that infrequent price adjustments by firms explain why money has aggregate real output effects. The basis of their challenge is the ‘selection effect’ – re-setting firms are not selected at random, they are those firms whose prices are furthest from the optimal reset price. Because of this the aggregate price level is sufficiently flexible for monetary neutrality. In this paper I add price review costs to an otherwise standard Golosov and Lucas model. This weakens the selection effect and restores monetary non-neutrality.

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KW - Information costs

KW - Non-neutrality of money

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KW - Time-dependent pricing

KW - Inattention

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JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

SN - 0164-0704

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ER -

State-dependent pricing and the non-neutrality of money

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Keywords

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