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S,s pricing in a dynamic equilibrium model with heterogeneous sectors

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  • Damjanovic, Vladislav
  • Nolan, Charles

Abstract

We study the impact of two-sided nominal shocks in a dynamic, equilibrium macroeconomic model. Goods complementarity differs across sectors as do the costs of changing prices. Even when strategic complementarities are equal across the sectors, the systematic differences in costs of price adjustment mean nominal shocks have a ‘sizeable’ impact on aggregate output and prices. We exploit certain fundamental properties of Markov processes to obtain analytical expressions for the stationary distributions of aggregate output and prices for the case of two sectors.

Suggested Citation

  • Damjanovic, Vladislav & Nolan, Charles, 2012. "S,s pricing in a dynamic equilibrium model with heterogeneous sectors," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 550-567.
    • Handle: RePEc:eee:dyncon:v:36:y:2012:i:4:p:550-567
    DOI: 10.1016/j.jedc.2011.11.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Price rigidity; (S; s) pricing; Macroeconomic dynamics;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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