TY  - JOUR
AU  - Golosov,Mikhail
AU  - Lucas,Robert E.
TI  - Menu Costs and Phillips Curves
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10187
PY  - 2003
Y2  - December 2003
UR  - http://www.nber.org/papers/w10187
L1  - http://www.nber.org/papers/w10187.pdf
N1  - Author contact info:
Mikhail Golosov
Department of Economics
Princeton University
111 Fisher Hall
Princeton, NJ 08544
Tel: 609/258-4003
Fax: 609/258-6419
E-Mail: golosov@princeton.edu

Robert E. Lucas, Jr.
Department of Economics
The University of Chicago
1126 East 59th Street
Chicago, IL  60637
Tel: 773/702-8179
Fax: 773/702-8490
E-Mail: relucas@midway.uchicago.edu
AB  - This paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation.  Sellers can change price only by incurring a real  menu cost.' We calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new U.S. data set of individual prices due to Klenow and Kryvtsov. The prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with the Israeli evidence obtained by Lach and Tsiddon.  The model is also used to conduct numerical experiments on the economy's response to credible and incredible disinflations and other shocks. In none of the simulations we conducted did monetary shocks induce large or persistent real responses.
ER  -