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Dynamic pricing and imperfect common knowledge
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DOI：10.1016/j.jmoneco.2007.12.008.png)
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Abstract
En 中文
Introducing private information into the dynamic pricing decision of firms by adding an idiosyncratic component to marginal cost can help explain two stylised facts about price changes: Aggregate inflation responds gradually and with inertia to shocks at the same time as individual price changes can be large. The inertial behaviour of inflation is driven by privately informed firms strategically 'herding' on the public information contained in the observations of lagged aggregate variables. The model also matches the average duration between price changes found in the data and it nests the standard New-Keynesian Phillips Curve as a special case. To solve the model, the paper derives an algorithm for solving a class of dynamic models with higher order expectations. (C) 2007 Elsevier B.V. All rights reserved.
Keywords:
private information
dynamic price setting
idiosyncratic marginal cost
sticky prices
inflation inertia
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