Skip to main content Accessibility help
×
Home
Hostname: page-component-8bbf57454-jcfbx Total loading time: 0.253 Render date: 2022-01-23T16:35:16.179Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }

PRICE FLEXIBILITY AND OUTPUT VOLATILITY UNDER MENU COSTS

Published online by Cambridge University Press:  23 January 2020

Nam T. Vu*
Affiliation:
Miami University of Ohio
*
Address correspondence to: Nam T. Vu, Department of Economics, Miami University of Ohio, 800 E. High St., Oxford, OH 45056, USA. e-mail: vunt@miamioh.edu.

Abstract

This paper studies the implications of price flexibility on output volatility under menu costs and finds price flexibility to be output-destabilizing under supply shocks, but not necessarily so under demand shocks. We illustrate that such a result hinges on the extent to which firms can adjust along both the intensive and the extensive margins, the latter of which is often absent in the literature.

Type
Articles
Copyright
© Cambridge University Press 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I am grateful for the comments from the editor, an associate editor, and two anonymous referees. All errors are mine.

References

Aruoba, S. B., Cuba-Borda, P. and Schorfheide, F. (2018) Macroeconomic dynamics near the ZLB: A tale of two countries. The Review of Economic Studies 85(1), 87118.CrossRefGoogle Scholar
Barsky, R. B., Thomas Juster, F., Kimball, M. S. and Shapiro, M. D. (1997) Preference parameters and behavioral heterogeneity: An experimental approach in the health and retirement study. The Quarterly Journal of Economics 112(2), 537579.CrossRefGoogle Scholar
Bhattarai, S., Eggertsson, G. B. and Schoenle, R. (2018) Is increased price flexibility stabilizing? Redux. Journal of Monetary Economics 100, 6682.CrossRefGoogle Scholar
Bils, M. and Klenow, P. J. (2004) Some evidence on the importance of sticky prices. Journal of Political Economy 112(5), 947985.CrossRefGoogle Scholar
Calvo, G. A. (1983) Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12(3), 383398.CrossRefGoogle Scholar
Campbell, J. R. and Eden, B. (2014) Rigid prices: Evidence from U.S. scanner data. International Economic Review 55(2), 423442.CrossRefGoogle Scholar
Caplin, A. and Leahy, J. (1991) State-dependent pricing and the dynamics of money and output. The Quarterly Journal of Economics 106(3), 683708.CrossRefGoogle Scholar
Chen, J. and Kashiwagi, M. (2017) The Japanese Taylor rule estimated using censored Quantile Regressions. Empirical Economics 52(1), 357371.CrossRefGoogle Scholar
Chetty, R. (2006) A new method of estimating risk aversion. American Economic Review 96(5), 18211834.CrossRefGoogle Scholar
Chevapatrakul, T., Kim, T.-H. and Mizen, P. (2009) The Taylor principle and monetary policy approaching a zero bound on nominal rates: Quantile regression results for the United States and Japan. Journal of Money, Credit and Banking 41(8), 17051723.CrossRefGoogle Scholar
Domenico, D. (2006) Japan: the case for a Taylor Rule? A simple approach. Pacific Economic Review 11(4), 327546.Google Scholar
Eggertsson, G. B. (2011) What fiscal policy is effective at zero interest rates?. In: NBER Macroeconomics Annual 2010, Volume 25, NBER Chapters, pp. 59112. National Bureau of Economic Research, Inc.CrossRefGoogle Scholar
Fueki, T., Fukunaga, I., Ichiue, H. and Shirota, T. (2016) Measuring potential growth with an estimated DSGE model of Japan’s economy. International Journal of Central Banking 12(1), 132.Google Scholar
Gagnon, E. (2009) Price setting during low and high inflation: Evidence from Mexico. The Quarterly Journal of Economics 124(83), 12211263.CrossRefGoogle Scholar
Gagnon, E., López-Salido, D. and Vincent, N. (2012) Individual Price Adjustment along the Extensive Margin. Working Paper 18213, National Bureau of Economic Research.CrossRefGoogle Scholar
Galí, J. (2013) Notes for a new guide to Keynes (I): Wages, aggregate demand, and employment. Journal of the European Economic Association 11(5), 9731003.CrossRefGoogle Scholar
Galí, J. and Monacelli, T. (2016) Understanding the gains from wage flexibility: The exchange rate connection. American Economic Review 106(12), 38293868.CrossRefGoogle Scholar
Golosov, M. and Lucas, R. E. (2007) Menu costs and phillips curves. Journal of Political Economy 115, 141.CrossRefGoogle Scholar
Iwata, Y. (2009) Fiscal Policy in an Estimated DSGE Model of the Japanese Economy : Do Non-Ricardian Households Explain All? Working Paper.Google Scholar
Kaplow, L. (2005) The value of a statistical life and the coefficient of relative risk aversion. Journal of Risk and Uncertainty 31(1), 2334.CrossRefGoogle Scholar
Knotek, E. S. and Terry, S. (2008) Alternative Methods of Solving State-Dependent Pricing Models. Working Paper, pp. 146.CrossRefGoogle Scholar
Kocherlakota, N. (1996) The equity premium: It’s still a puzzle. Journal of Economic Literature 34(1), 4271.Google Scholar
Krusell, P. and Smith, A. A. (1998) Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106(5), 867896.CrossRefGoogle Scholar
Maliar, L., Maliar, S. and Valli, F. (2010) Solving the incomplete markets model with aggregate uncertainty using the Krusell–Smith Algorithm. Journal of Economics Dynamics Control 34(1), 4249.CrossRefGoogle Scholar
Mehra, R. and Prescott, E. (1985) The equity premium: A Puzzle. Journal of Monetary Economics 15(2), 145161.CrossRefGoogle Scholar
Midrigan, V. (2007) International price dispersion in state-dependent pricing models. Journal of Monetary Economics 54(8), 22312250.CrossRefGoogle Scholar
Nakamura, E. and Steinsson, J. (2010) Monetary non-neutrality in a multisector menu cost model. The Quarterly Journal of Economics 125(3), 9611013.CrossRefGoogle Scholar
Nevo, A. (2001) Measuring market power in the ready-to-eat cereal industry. Econometrica 69(2), 307342.CrossRefGoogle Scholar
Szpiro, G. G. (1986) Measuring risk aversion: An alternative approach. The Review of Economics and Statistics 68(1), 156159.CrossRefGoogle Scholar
Tauchen, G. (1986) Finite state Markov-chain approximations to univariate and vector autoregressions. Economics Letters 20(1), 177181.CrossRefGoogle Scholar
Vavra, J. (2014) Inflation dynamics and time-varying volatility: New evidence and an Ss interpretation. The Quarterly Journal of Economics 129(1), 215258.CrossRefGoogle Scholar
Viscusi, W. K. and Evans, W. (1990) Utility functions that depend on health status: Estimates and economic implications. American Economic Review 80(3), 353–74.Google Scholar
Viscusi, W. K. and Aldy, J. E. (2003) The value of a statistical life: A critical review of market estimates throughout the world. Journal of risk and uncertainty 27(1), 576.CrossRefGoogle Scholar
Supplementary material: PDF

Vu supplementary material

Online Appendix

Download Vu supplementary material(PDF)
PDF 190 KB
1
Cited by

Send article to Kindle

To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

PRICE FLEXIBILITY AND OUTPUT VOLATILITY UNDER MENU COSTS
Available formats
×

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

PRICE FLEXIBILITY AND OUTPUT VOLATILITY UNDER MENU COSTS
Available formats
×

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

PRICE FLEXIBILITY AND OUTPUT VOLATILITY UNDER MENU COSTS
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *