Menu costs

Firm Uncertainty Cycles and the Propagation of Nominal Shocks

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Version Date: 
Feb 2017

Firms operate in constantly changing and uncertain environments. We argue that firm uncertainty is a key determinant of pricing decisions, and that it affects the propagation of nominal shocks in the economy. For this purpose, we develop a price-setting model with menu costs and imperfect information about idiosyncratic productivity.

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