Though built with increasingly precise microfoundations, modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks, as recently stressed by Chari, Kehoe, and McGrattan [2000]. This is an ironic finding, since...

State-dependent pricing (SDP) models treat the timing of price changes as a profit-maximizing choice, symmetrically with other decisions of firms. Using quantitative general equilibrium models that incorporate a "generalized (S,s) approach," the authors investigate the implications of SDP for...