Firm-Specific Capital, Nominal Rigidities and the Business Cycle

52 Pages Posted: 11 May 2005

See all articles by David Altig

David Altig

Federal Reserve Bank of Cleveland; Federal Reserve Banks - Federal Reserve Bank of Atlanta; University of Chicago - Booth School of Business

Jesper Lindé

Sveriges Riksbank - Research Division

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: January 2005

Abstract

Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model that resolves this apparent micro/macro conflict. Our model is consistent with post-war US evidence on inflation inertia even though firms re-optimize prices on average once every 1.5 quarters. The key feature of our model is that capital is firm-specific and pre-determined within a period.

JEL Classification: E30, E40, E50

Suggested Citation

Altig, David and Altig, David and Linde, Jesper and Christiano, Lawrence J. and Eichenbaum, Martin, Firm-Specific Capital, Nominal Rigidities and the Business Cycle (January 2005). Available at SSRN: https://ssrn.com/abstract=721600

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Lawrence J. Christiano

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