This paper studies a general-equilibrium model of a dynamic economy with menu costs. Each firm's productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend, and the money supply to monetary shocks around a trend. All consumption, pricing, and production decisions...

The prevalence of labor contracts with fixed duration seems surprising. Why is a fixed duration preferred to a stochastic duration that depends on the consumer price index? In this paper, the specification of the contract duration is determined endogenously. The wage rate can be indexed to the...

This paper studies the welfare consequences of inflation and disinflation in a model in which monopol istic firms incur a fixed cost of price adjustment. It is shown that a moderately increasing price level is associated with higher social welfare than a perfectly stable price level, and the...