Seminar
Past
Non-constant demand elasticities, firm dynamics and monetary non-neutrality: role of demand shocks
Felipe Saffie
- Date24 September 2024
- Time 11h30 - 12h30
- Room Salle 1 rue du Colonel Driant & Online
Résumé
We develop a simple menu-cost model with non-constant elasticity of demand that features idiosyncratic productivity and demand shocks. The model is calibrated to match firm-level productivity and demand processes estimated from U.S. data. Despite its simplicity, the calibrated model delivers untargeted pricing dynamics and a markup distribution that are consistent with U.S. micro data. Moreover, it also generates sizable monetary non-neutrality that rivals more complicated alternative menu cost models that explicitly target pricing dynamics. The key in reconciling firm and pricing dynamics comes from the interaction between non-constant elasticity of demand and idiosyncratic demand shocks. Thus, this framework effortlessly unifies pricing, markup, and firm dynamics.
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