Real rigidities that limit the responsiveness of real marginal cost to output are a key ingredient of sticky price models necessary to account for the dynamics of output and inflation. We argue here, in the spirit of Bils and Kahn (2000), that the behavior of marginal cost over the cycle is...

Kryvtsov and Midrigan (2008) study the behavior of inventories in an economy with menu costs, fixed ordering costs and the possibility of stockouts. This paper extends their analysis to a richer setting that is capable of more closely accounting for the dynamics of the US business cycle. We find...

A pervasive prediction of business cycle models is that investment by firms in durable goods (capital, inventories) is highly sensitive to fluctuations in real interest rates (Thomas 2002, House 2007, Kryvtsov and Midrigan 2008). This prediction stands in sharp contrast with the data: investment...

We examine the general equilibrium implications of an Aguirregabiria (1999) - type economy, in which firms are subject to fixed cost of price- and inventory-adjustment that is capable of generating infrequent orders and price changes observed in the data. We ask whether the model can account for...

Recent New Keynesian models of macroeconomy view nominal cost rigidities, rather than nominal price rigidities, as the key feature that accounts for the observed persistence in output and inflation. Kryvtsov and Midrigan (2010a,b) reassess these conclusions by combining a theory based on nominal...

A growing consensus in New Keynesian macroeconomics is that nominal cost rigidities, rather than countercyclical markups, account for the bulk of the real effects of monetary policy shocks. We revisit these conclusions using theory and data on inventories. We study an economy with nominal...

Real rigidities that limit the responsiveness of real marginal cost to output are a key ingredient of sticky price models necessary to account for the dynamics of output and inflation. We argue here, in the spirit of Bils and Kahn (2000), that the behavior of marginal cost over the cycle is...

Kryvtsov and Midrigan (2008) study the behavior of inventories in an economy with menu costs, fixed ordering costs and the possibility of stock-outs. This paper extends their analysis to a richer setting that is capable of more closely accounting for the dynamics of the US business cycle. We...

This paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting. We revisit...

This paper examines the role of monetary policy in an environment with aggregate risk and incomplete markets. In a two-period overlapping-generations model with aggregate uncertainty and nominal bonds, optimal monetary policy attains the ex-ante Pareto optimal allocation. This policy aims to...