DP4858 Firm-Specific Capital, Nominal Rigidities and the Business Cycle
|Author(s):||David E Altig, Lawrence J. Christiano, Martin Eichenbaum, Jesper Lindé|
|Publication Date:||January 2005|
|JEL(s):||E30, E40, E50|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4858|
Macroeconomic and microeconomic data paint conflicting pictures of price behaviour. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model that resolves this apparent micro/macro conflict. Our model is consistent with post-war US evidence on inflation inertia even though firms re-optimize prices on average once every 1.5 quarters. The key feature of our model is that capital is firm-specific and pre-determined within a period.