New Pricing Models, Same Old Phillips Curves? /
Auclert, Adrien.
New Pricing Models, Same Old Phillips Curves? / Adrien Auclert, Rodolfo D. Rigato, Matthew Rognlie, Ludwig Straub. - Cambridge, Mass. National Bureau of Economic Research 2022. - 1 online resource: illustrations (black and white); - NBER working paper series no. w30264 . - Working Paper Series (National Bureau of Economic Research) no. w30264. .
July 2022.
We show that, in a broad class of menu cost models, the dynamics of aggregate inflation in response to arbitrary shocks to aggregate costs are nearly the same as in Calvo models with suitably chosen Calvo adjustment frequencies. We first prove that the canonical menu cost model is first-order equivalent to a mixture of two time-dependent models, which reflect the extensive and intensive margins of price adjustment. We then show numerically that, in any plausible parameterization, this mixture is well-approximated by a single Calvo model. This close numerical fit carries over to other standard specifications of menu cost models. Thus, the Phillips curve for a menu cost model looks like the New Keynesian Phillips curve, but with a higher slope.
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Mode of access: World Wide Web.
Price Level • Inflation • Deflation
Monetary Policy
New Pricing Models, Same Old Phillips Curves? / Adrien Auclert, Rodolfo D. Rigato, Matthew Rognlie, Ludwig Straub. - Cambridge, Mass. National Bureau of Economic Research 2022. - 1 online resource: illustrations (black and white); - NBER working paper series no. w30264 . - Working Paper Series (National Bureau of Economic Research) no. w30264. .
July 2022.
We show that, in a broad class of menu cost models, the dynamics of aggregate inflation in response to arbitrary shocks to aggregate costs are nearly the same as in Calvo models with suitably chosen Calvo adjustment frequencies. We first prove that the canonical menu cost model is first-order equivalent to a mixture of two time-dependent models, which reflect the extensive and intensive margins of price adjustment. We then show numerically that, in any plausible parameterization, this mixture is well-approximated by a single Calvo model. This close numerical fit carries over to other standard specifications of menu cost models. Thus, the Phillips curve for a menu cost model looks like the New Keynesian Phillips curve, but with a higher slope.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Price Level • Inflation • Deflation
Monetary Policy