The Analytic Theory of a Monetary Shock / Fernando E. Alvarez, Francesco Lippi.

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Alvarez, Fernando E

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28464.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We propose an analytical method to analyze the propagation of a once-and-for-all shock in a broad class of sticky price models. The method is based on the eigenvalue- eigenfunction representation of the dynamics of the cross-sectional distribution of firms' desired adjustments. A key novelty is that, under assumptions that are appropriate for low-inflation economies, we can approximate the whole profile of the impulse response for any moment of interest in response to an aggregate shock (any displacement of the invariant distribution). We present several applications and discuss extensions.

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February 2021.

We propose an analytical method to analyze the propagation of a once-and-for-all shock in a broad class of sticky price models. The method is based on the eigenvalue- eigenfunction representation of the dynamics of the cross-sectional distribution of firms' desired adjustments. A key novelty is that, under assumptions that are appropriate for low-inflation economies, we can approximate the whole profile of the impulse response for any moment of interest in response to an aggregate shock (any displacement of the invariant distribution). We present several applications and discuss extensions.