Why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption; here it is a result. We use search theory, with two consequences: prices are set in dollars, since money is the medium of exchange; and...

Arguably the most difficult question in macroeconomics is: why do individuals set prices in nominal terms that do not respond to changes in the aggregate price level? Of course some must respond, or the aggregate does not change, but many prices seem sticky in the short run. In popular macro...

Why do some sellers set prices in nominal terms that do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption. Here it is a result. We use search theory, with two consequences: prices are set in dollars since money is the medium of exchange; and...

Conventional wisdom is that inflation makes people spend money faster, trying to get rid of it like a “hot potato,” and this is a channel through which inflation affects velocity and welfare. Monetary theory with endogenous search intensity seems ideal for studying this. However, in standard...

Conventional wisdom is that inflation makes people spend money faster, trying to get rid of it like a “hot potato,” and this is a channel through which inflation affects velocity and welfare. Monetary theory with endoge- nous search intensity seems ideal for studying this. However, in...

We study the long run (low frequency) dynamic relationship between money, as measured by inflation or interest rates, and unemployment. We first discuss the data. We then develop a framework where money and unemployment are both modeled with microfoundations based on explicit frictions. This...