Menu costs and the long-run output–inflation trade-off

Abstract

In standard, New Keynesian models, there exists an unlimited long-run trade-off between output and inflation. But when we allow for an endogenous frequency of price adjustment, this is replaced by an inverted U-shaped relationship.

Price adjustment and exchange rate pass-through

“…Levin and Yun (2007) follow the approach pursued here, allowing firms to change contract duration in a Calvo pricing framework. Following the analysis of Romer (1999) and Devereux and Yetman (2002), they describe a Nash equilibrium in which each firm within an industry chooses its contract duration given the parameter chosen by all other firms, and in equilibrium all firms choose the same duration. They find that the results of inflation rates in their model are similar to that in a more conventional state dependent pricing framework, such as Golosov and Lucas (2007).…”

Reconsidering the natural rate hypothesis in a New Keynesian framework

“…In addition, the assumption of the linear utility in labor leads to the proportionality between the logarithm of output and markup. Besides, the linear relation corresponds to those used in Romer (1990) and Devereux and Yetman (2002). But we do not impose such restrictions in the case of Figure 2, in order to allow for different values of steady-state markup.…”

“…In this section, we assume that firms choose the probability of their price changes in each period, following Romer (1999), Kiley (2000) and Devereux and Yetman (2002). The difference from theirs is that their optimization problems of choosing the arrival rate of price changes exploit quadratic loss functions of firms, while we do not rely on any approximation to the characterization of the optimization problem.…”

Increasing returns to scale and the long-run Phillips curve

“…The general equilibrium is the solution of the equation system comprising the consumption condition (1) ; the leisure condition (2) ; the money balance condition (3) ; the production function (5) ; the price setting equation (6) ; the intermediate good demand (8) ; the price index (9), as well as the market clearing condition:…”

“…as well: a 10% increase in money growth leads to a fall of 3.14 percentage points in unemployment. Studies analysing the steady state properties of the New Keynesian models, as King and Wolman (1996), Ascari (1998Ascari ( , 2000, Devereux and Yetman (2002) and Graham and Snower (2003), support long-run money non-superneutrality. Recent explanations of this pattern focused on three factors:…”