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Nonuniform Staggered Prices and Output Persistence

Journal of money credit and banking

Published online on

Abstract

Staggered prices are a fundamental building block of New Keynesian dynamic stochastic general equilibrium models. In the standard model, prices are uniformly staggered, but recent empirical evidence suggests that deviations from uniform staggering are common. This paper analyzes how synchronization of price changes affects the response to monetary policy shocks. I find that even large deviations from uniform staggering have small effects on the response of output. Aggregate dynamics in a model of uniform staggering may serve well as an approximation to a more complicated model with some degree of synchronization in price setting.