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We develop a general-equilibrium model of inventories with explicit micro-foundations by embedding the production-cost-smoothing motive (e.g., Eichenbaum, AER 1989) into an otherwise standard DSGE model. We show that firms facing idiosyncratic cost shocks have incentives to bunch production and...
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The basic assumption of this paper is an attempt to be specific about price formation while retaining a fixed-price … effects in a fixed-price equilibrium produce certain testable characteristics in macro time series data. We will argue that … these can be used to discriminate between a model of the type we study and the analogous flexible-price system. In section 2 …
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The simplest macroeconomic models in which markets clear instantaneously, and expectations are rational preclude the existence of "business cycles," that is, of serially correlated deviations of output from trend. This paper studies one of several mechanisms that can be used to make these...
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