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Price rigidities, inventories, and growth fluctuations
Author(s) -
Tsoukis Chris,
Naqvi Naveed
Publication year - 2007
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1325
Subject(s) - economics , inflation (cosmology) , phillips curve , flexibility (engineering) , new keynesian economics , keynesian economics , econometrics , short run , monetary economics , monetary policy , theoretical physics , physics , management
Abstract We investigate the interactions of price rigidities and storability of goods, and their implications for inflation and growth. The model is an optimising, stochastic general equilibrium one, featuring endogenous growth, the possibility of (short run) excess demand and inflation derived from sluggish and staggered price setting (a version of the ‘New Keynesian Phillips Curve’). Analytical short‐run dynamics are derived. A notable feature is the predicted short‐run comovements between growth and inflation (negative) and between the inventory ratio and growth (positive). Increased price flexibility reduces the persistence of the system but its overall influence on variances is uncertain. Copyright © 2007 John Wiley & Sons, Ltd.