Heterogeneous Price-Setting Behavior and Aggregate Dynamics: Some General Results

43 Pages Posted: 29 Nov 2012

See all articles by Carlos Carvalho

Carlos Carvalho

Asset 1 Investment Company; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Felipe F. Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: March 1, 2008

Abstract

We analyze the effects of heterogeneity in price setting behavior in time-dependent sticky price and sticky information models characterized by quite general adjustment hazard functions. In a large class of models that includes the most commonly used price setting specifications, heterogeneity leads monetary shocks to have larger real effects than in one-sector economies with the same frequency of adjustments. Quantitatively, the effects of heterogeneity in models calibrated to match the recent empirical evidence on pricing behavior are large, even in the absence of strategic complementarity in price setting. We find that the degree of monetary non-neutrality in the calibrated heterogeneous economies can be as large as in an otherwise identical one-sector economy with roughly three times more nominal rigidity.

Keywords: heterogeneity, aggregation, price setting, general hazard function

JEL Classification: E1, E3

Suggested Citation

Carvalho, Carlos and Schwartzman, Felipe F., Heterogeneous Price-Setting Behavior and Aggregate Dynamics: Some General Results (March 1, 2008). Available at SSRN: https://ssrn.com/abstract=2182343 or http://dx.doi.org/10.2139/ssrn.2182343

Carlos Carvalho (Contact Author)

Asset 1 Investment Company ( email )

Avenida Juscelino Kubitschek, 1600/Conj 52
São Paulo, São Paulo
Brazil

HOME PAGE: http://www.asset1.com.br

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

Felipe F. Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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