This paper investigates whether extensions of the Calvo and menu-cost models that include idiosyncratic technology shocks are consistent with key features of individual consumer price adjustment. The comparison of the models focuses on three facts pertaining to the impact of inflation on the setting of consumer prices. First, the average frequency of consumer price changes initially rises slowl...

Recently, China has a more prominent trend of domestic price rise, which has obviously influenced public’s daily life and corporate production and operation. If we don’t take effective measures to deal with price trend, it will lead to further strengthened inflation expectation and deteriorate market economy order. Business community is actively seeking countermeasures to deal with the impact o...

The Federal Reserve Bank of Cleveland has publicly endorsed a legislative resolution that would make zero inflation, or price-level stability, the overriding long-run objective of the Federal Reserve System. Price-level stability means a policy intended to keep the price level reasonably constant over long horizons. That is, although the price level may fluctuate temporarily in response to tran...

This paper formulates a stylized New Keynesian model in which each individual firm can select the frequency of its price adjustments, and we demonstrate that the endogeneity of the contract structure has a dramatic impact on the magnitude of the aggregate effects of steady-state inflation. We start by analyzing the exact nonlinear properties of a benchmark economy with exogenous contract durati...

I characterize time consistent equilibrium in an economy with price rigidity and an optimizing monetary authority operating under discretion. Firms have the option to increase their frequency of price change, at a cost, in response to higher inflation. Previous studies, which assume a constant degree of price rigidity across inflation regimes, find two time consistent equilibria — one with low ...

This paper uses a structurally estimated macroeconometric model, denoted the MC model, to evaluate inflation targeting in the United States. Various interest rate rules are tried with differing weights on inflation and output, and various optimal control problems are solved using differing weights on inflation and output targets. Price-level targeting is also considered. The results show that 1...

The most important economic measures are monetary. They have many different names, are derived in different theories and employ different formulas; yet, they all attempt to do basically the same thing: to separate a change in nominal value into a ‘real part’ due to the changes in quantities and an inflation due to the changes in prices. Examples are: real national product and its components, th...

entral banks differ in their specific inflation objectives and conduct of policy. However, they typically confront the common problem of identifying which price changes are permanent and which are transitory. Because of the lagged effects of monetary policy, mistaking the nature of price changes can be extremely costly. For example, the failure to detect the onset of inflationary pressures may ...