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Quarterly Journal of Economics Vol. 139 No. 1 2024

New Pricing Models, Same Old Phillips Curves?

Adrien Auclert1; Rodolfo Rigato2; Matthew Rognlie3; Ludwig Straub4

1 Stanford University and National Bureau of Economic Research , United States, and Centre for Economic Policy Research , United Kingdom · 2 European Central Bank , Germany · 3 Northwestern University and National Bureau of Economic Research , United States · 4 Harvard University and National Bureau of Economic Research , United States, and Centre for Economic Policy Research , United Kingdom

Abstract

We show that in a broad class of menu cost models, the first-order dynamics of aggregate inflation in response to arbitrary shocks to aggregate costs are nearly the same as in Calvo models with suitably chosen Calvo adjustment frequencies. We first prove that the canonical menu cost model is first-order equivalent to a mixture of two time-dependent models, which reflect the extensive and intensive margins of price adjustment. We then show numerically that in any plausible parameterization, this mixture is well approximated by a single Calvo model. This close numerical fit carries over to other standard specifications of menu cost models. Thus, for shocks that are not too large, the Phillips curve for a menu cost model looks like the New Keynesian Phillips curve, but with a higher slope.

DOI
10.1093/qje/qjad041
Volume
139
Issue
1
Pages
121-186
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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