23.11.2022 David Domeij (Stockholm)

Topic: “Price Posting and Sticky Prices: A Monetary Macro Mode”


We introduce price posting and information frictions into a canonical monetary macro model. Despite costless price adjustment, insufficient search incentives prevent market clearing. The model has an interval of steady-state price levels. Under successful inflation-targeting, the equilibrium price level is selected by past shocks and policies. If a negative supply shock makes the current price level unsustainable, both prices and mark-ups immediately rise. Absent expansionary monetary or fiscal policy, the higher mark-up persists even if the shock subsides.