Firm-Specific Capital, Nominal Rigidities and the Business Cycle

Altig, David; Lindé, Jesper; Christiano, Lawrence J.; Eichenbaum, Martin

doi:10.2139/ssrn.666822

Download This Paper

Open PDF in Browser

Add Paper to My Library

Firm-Specific Capital, Nominal Rigidities and the Business Cycle

FRB of Chicago Working Paper No. 2005-01

Riksbank Research Paper Series No. 15

Sveriges Riksbank Working Paper Series No. 176

FRB of Cleveland Working Paper No. 04-16

54 Pages Posted: 14 Feb 2005 Last revised: 9 Mar 2009

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

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)

There are 4 versions of this paper

Date Written: October 18, 2006

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 which resolves this apparent micro - macro conflict. Our model is consistent with post-war U.S. 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 predetermined within a period.

Keywords: capital, inflation, price behavior

JEL Classification: E3, E4, E5

Suggested Citation: 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 (October 18, 2006). FRB of Chicago Working Paper No. 2005-01, Riksbank Research Paper Series No. 15, Sveriges Riksbank Working Paper Series No. 176 , FRB of Cleveland Working Paper No. 04-16, Available at SSRN: https://ssrn.com/abstract=666822 or http://dx.doi.org/10.2139/ssrn.666822