State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output

  title={State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output},
  author={Michael Dotsey and R. G. King and Alexander L. Wolman},
  journal={Quarterly Journal of Economics},
Economists have long suggested that nominal product prices are changed infrequently because of fixed costs. In such a setting, optimal price adjustment should depend on the state of the economy. Yet, while widely discussed, statedependent pricing has proved difficult to incorporate into macroeconomic models. This paper develops a new, tractable theoretical state-dependent pricing framework. We use it to study how optimal pricing depends on the persistence of monetary shocks, the elasticities of… 

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