State-dependent pricing and the non-neutrality of money

David Demery

Research output: Contribution to journalArticle (Academic Journal)

2 Citations (Scopus)
169 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 contributionState-dependent pricing and the non-neutrality of money
Original languageEnglish
Pages (from-to)933–944
Number of pages12
JournalJournal of Macroeconomics
Volume34
Issue number4
Early online date12 Jun 2012
DOIs
Publication statusPublished - Dec 2012

Keywords

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

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