This paper presents a general equilibrium model that is consistent with recent empirical evidence showing that the U.S. price level and inflation are much more responsive to aggregate technology shocks than to monetary policy shocks. The model of this paper builds on recent work by Mackowiak and...

We model the optimal price setting problem of a firm in the presence of both information and menu costs. In this problem the firm optimally decides when to collect costly information on the adequacy of its price, an activity which we refer to as a price "review". Upon each review, the firm...

We model the optimal price setting problem of a firm in the presence of both information and menu costs. In this problem the firm optimally decides when to collect costly information on the adequacy of its price, an activity which we refer to as a price "review". Upon each review, the firm...

The speed of inflation adjustment to aggregate technology shocks is substantially larger than to monetary policy shocks. Prices adjust very quickly to technology shocks, while they only respond sluggishly to monetary policy shocks. This evidence is hard to reconcile with existing models of...

This paper studies U.S. inflation adjustment speed to aggregate technology shocks and to monetary policy shocks in a Bayesian VAR model with a large number of macroeconomic variables. According to the model estimated on the 1960-2007 sample, inflation adjusts much faster to aggregate technology...