Firm-Specifc Capital, Nominal Rigidities, and the Business Cycle
| WP 04-16 |
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Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our model is consistent with post-war U.S. 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 predetermined within a period.
JEL Codes: E3, E4, E5
Keywords: capital, inflation, price behavior
Suggested citation: Altig, David, Lawrence Christiano, Martin Eichenbaum, and Jesper Linde, 2004. "Firm-Specifc Capital, Nominal Rigidities, and the Business Cycle," Federal Reserve Bank of Cleveland, Working Paper no. 04-16.