We study the implications of increased price flexibility on aggregate output volatility in a dynamic stochastic general … finding is that increased price flexibility would have been destabilizing for output and employment. -- increased price … shocks driving the economy and the systematic response of monetary policy to inflation: More flexible prices amplify the …

output and inflation across a population of firms is studied. The only form of heterogeneity is confined to the probability … of output and inflation depend crucially on the proportion of firms that are allowed to change their prices. We test this …-cyclical correlation between the skewness of inflation and aggregates, but the relation with output is less sure. Our results can be …