Kohler, Thomas; L'Huillier, Jean-Paul; Phelan, Gregory; … - 2026 - Original version: October 2025, this version: March 2026
Firms tend to justify price increases as necessary to cover rising costs. However, standard models imply that firms not only adjust prices to cost increases, but also to changes in spending. We present a model where, instead, there is differential adjustment depending on the type of shock. The...