This paper studies the volatility implications of anticipated cost-push shocks (i.e. news shocks) in a New Keynesian model with hybrid price setting both under optimal unrestricted and discretionary monetary policy with flexible inflation targeting. If the degree of backward-looking price...

We document a novel role of heterogeneity in price rigidity: It strongly amplifies the capacity of idiosyncratic shocks to drive aggregate fluctuations. Heterogeneity in price rigidity also completely changes the identity of sectors from which fluctuations originate. We show these results both...

In this paper we present a generalized sticky price model which allows, depending on the parameterization, for demand shocks to maintain strong expansionary effects even in the presence of perfectly flexible prices. The model is constructed to incorporate the standard three-equation New...