Speaker: Jose A. Scheinkman (Columbia)

Title: Re-pricing avalanches

Abstract: Monthly aggregate price changes exhibit chronic fluctuations but the aggregate shocks that drive these fluctuations are often elusive.  Macroeconomic models often add stochastic macro-level shocks such as technology shocks or monetary policy shocks to produce these aggregate fluctuations. In this paper, we show that a state-dependent  pricing model with a large but finite number of firms is capable of generating large fluctuations in the number of firms that adjust prices in response to an idiosyncratic shock to a firm’s cost of price adjustment.  These fluctuations, in turn, cause fluctuations  in aggregate price changes even in the absence of aggregate shocks. (Joint work with Makoto Nirei.)