Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 176: Firm-Specific Capital, Nominal Rigidities and the Business Cycle
David Altig (), Lawrence Christiano (), Martin Eichenbaum () and Jesper Lindé ()
Additional contact information
David Altig: Federal Reserve Bank of Cleveland
Lawrence Christiano: Northwestern University
Martin Eichenbaum: Northwestern University
Jesper Lindé: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our model is consistent with post-war U.S. evidence on inflation inertia even though firms re-optimize prices on average once every 1.5 quarters. The key feature of our model is that capital is firm-specific and predetermined within a period.
Keywords: Technology shocks; Firm-specific capital; Monetary policy; Nominal rigidities; Real rigidities; Business cycles
54 pages, December 1, 2004
Full text files
WP_176.pdf
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