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Presented By: Department of Economics

Michael Beauregard Seminar in Macroeconomics: The Macroeconomics of Sticky Prices with Generalized Hazard Functions. (joint with Fernando Alvarez and Aleksei Oskolkov)

Francesco Lippi, LUISS University

Econ Umich Econ Umich
Econ Umich
Abstract:
We give a full analytic characterization of a large class of sticky-price models where the firm's price setting behavior is described by a generalized hazard function. Such a function allows for a vast variety of empirical hazards to be tted. This setup is microfounded by random menu costs as in Caballero and Engel (1993) or, alternatively, by information frictions as in Woodford (2009). We establish two main results. First, we show how to identify all the primitives of the model, including the distribution of the fundamental adjustment costs and the implied generalized hazard function, using the distribution of price changes. Second, we derive a sucient statistic for the aggregate eect of a monetary shock: given an arbitrary generalized hazard function, the cumulative impulse response of output to a once-and-for-all monetary shock is proportional to the ratio of the kurtosis of the steady-state distribution of price changes over the frequency of price adjustment. We prove that Calvo's model yields the upper bound and Golosov and Lucas's model the lower bound on this measure within the class of random menu cost models.

* To join the seminar, please contact at econ.events@umich.edu

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April 7, 2021 (Wednesday) 4:00pm
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