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Gasteiger, E. & Grimaud, A. (2023). Price setting frequency and the Phillips curve. European Economic Review. 158

E. M. Gasteiger and A. Grimaud,  "Price setting frequency and the Phillips curve", in European Economic Review, vol. 158, 2023

@article{gasteiger2023_1732206359696,
	author = "Gasteiger, E. and Grimaud, A.",
	title = "Price setting frequency and the Phillips curve",
	journal = "European Economic Review",
	year = "2023",
	volume = "158",
	number = "",
	doi = "10.1016/j.euroecorev.2023.104535",
	url = "https://www.sciencedirect.com/science/article/pii/S0014292123001642?via%3Dihub"
}

TY  - JOUR
TI  - Price setting frequency and the Phillips curve
T2  - European Economic Review
VL  - 158
AU  - Gasteiger, E.
AU  - Grimaud, A.
PY  - 2023
SN  - 0014-2921
DO  - 10.1016/j.euroecorev.2023.104535
UR  - https://www.sciencedirect.com/science/article/pii/S0014292123001642?via%3Dihub
AB  - We develop a New Keynesian (NK) model with endogenous price setting frequency. Whether a firm updates its price is a discrete choice: when expected benefits outweigh expected costs, prices are reset optimally. The model gives rise to a non-linear Phillips curve as prices are more flexible during demand-driven expansions and less so during demand-driven recessions. Monetary policy can have substantial real effects despite the model having a state-dependent pricing component. Our quantitative analysis shows that contrary to the standard NK model, the assumed price setting behavior: (i) is consistent with micro data on price setting frequency; (ii) generates a direct effect of the time-varying price setting frequency on inflation; (iii) creates time-variation in the Phillips curve slope that explains shifts in the Phillips curve associated with different historical episodes; (iv) explains inflation dynamics without relying on implausible high cost-push shocks and nominal rigidities inconsistent with micro data; (v) reconciles the NK model with observed inflation moments.
ER  -