ebook img

James Costain and Anton Nakov PDF

65 Pages·2012·0.85 MB·English
by  
Save to my drive
Quick download
Download
Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.

Preview James Costain and Anton Nakov

Logit price dynamics James Costain and Anton Nakov BancodeEspan˜a,FederalReserveBoard May 2012 CostainandNakov (BdE&FRB) Logitpricedynamics May2012 1/54 Case study evidence of Zbaracki et al (2004) points to managerial costs Three approaches to price stickiness 1 Arbitrary failures to adjust: (cid:73) Taylor (1979), Calvo (1983) 2 “Menu costs”: (cid:73) Barro (1972), Mankiw (1985), Caplin-Spulber (1987) (cid:73) Dotsey et al (1999), Golosov-Lucas (2007), Midrigan (2011) 3 Costly or imperfect information processing and decisions, including: (cid:73) Akerlof-Yellen (1985), Mankiw-Reis (2002) (cid:73) Sims (2003), Woodford (2009) CostainandNakov (BdE&FRB) Logitpricedynamics May2012 2/54 Three approaches to price stickiness 1 Arbitrary failures to adjust: (cid:73) Taylor (1979), Calvo (1983) 2 “Menu costs”: (cid:73) Barro (1972), Mankiw (1985), Caplin-Spulber (1987) (cid:73) Dotsey et al (1999), Golosov-Lucas (2007), Midrigan (2011) 3 Costly or imperfect information processing and decisions, including: (cid:73) Akerlof-Yellen (1985), Mankiw-Reis (2002) (cid:73) Sims (2003), Woodford (2009) Case study evidence of Zbaracki et al (2004) points to managerial costs CostainandNakov (BdE&FRB) Logitpricedynamics May2012 2/54 This paper 1 Main assumption: precise decisions are costly. Making exactly the right decision at all points in time is extremely (infinitely!) costly. 2 Game theoretic approach: “control costs”. 1 Assume a cost function for precision. 2 Implies mistakes occur in equilibrium. 3 If precision is measured by entropy, then choices distributed as logit (Mattsson and Weibull, 2002). 3 Two margins for errors: 1 When to adjust price (like Costain-Nakov JME 2011) 2 Which price to set (like Costain-Nakov ECB WP 1375) 4 This paper shows how the two margins interact. CostainandNakov (BdE&FRB) Logitpricedynamics May2012 3/54 3 Putting “logit equilibrium” or “control costs” in a macro model 4 Redefining “menu costs” so they can be interpreted as costs of managerial decisions 5 Showing that near-rational price adjustment, where errors can occur if they are not too costly, is tractable and empirically successful 6 An ad hoc simplification of rational inattention that is “infinitely” easier to solve Relation to the literature Possible interpretations of our paper, relative to previous literature: 1 Combining two margins we considered in previous papers 2 Showing how to apply “control costs” to decision of when to adjust CostainandNakov (BdE&FRB) Logitpricedynamics May2012 4/54 4 Redefining “menu costs” so they can be interpreted as costs of managerial decisions 5 Showing that near-rational price adjustment, where errors can occur if they are not too costly, is tractable and empirically successful 6 An ad hoc simplification of rational inattention that is “infinitely” easier to solve Relation to the literature Possible interpretations of our paper, relative to previous literature: 1 Combining two margins we considered in previous papers 2 Showing how to apply “control costs” to decision of when to adjust 3 Putting “logit equilibrium” or “control costs” in a macro model CostainandNakov (BdE&FRB) Logitpricedynamics May2012 4/54 5 Showing that near-rational price adjustment, where errors can occur if they are not too costly, is tractable and empirically successful 6 An ad hoc simplification of rational inattention that is “infinitely” easier to solve Relation to the literature Possible interpretations of our paper, relative to previous literature: 1 Combining two margins we considered in previous papers 2 Showing how to apply “control costs” to decision of when to adjust 3 Putting “logit equilibrium” or “control costs” in a macro model 4 Redefining “menu costs” so they can be interpreted as costs of managerial decisions CostainandNakov (BdE&FRB) Logitpricedynamics May2012 4/54 6 An ad hoc simplification of rational inattention that is “infinitely” easier to solve Relation to the literature Possible interpretations of our paper, relative to previous literature: 1 Combining two margins we considered in previous papers 2 Showing how to apply “control costs” to decision of when to adjust 3 Putting “logit equilibrium” or “control costs” in a macro model 4 Redefining “menu costs” so they can be interpreted as costs of managerial decisions 5 Showing that near-rational price adjustment, where errors can occur if they are not too costly, is tractable and empirically successful CostainandNakov (BdE&FRB) Logitpricedynamics May2012 4/54 Relation to the literature Possible interpretations of our paper, relative to previous literature: 1 Combining two margins we considered in previous papers 2 Showing how to apply “control costs” to decision of when to adjust 3 Putting “logit equilibrium” or “control costs” in a macro model 4 Redefining “menu costs” so they can be interpreted as costs of managerial decisions 5 Showing that near-rational price adjustment, where errors can occur if they are not too costly, is tractable and empirically successful 6 An ad hoc simplification of rational inattention that is “infinitely” easier to solve CostainandNakov (BdE&FRB) Logitpricedynamics May2012 4/54 SOME STYLIZED FACTS CostainandNakov (BdE&FRB) Logitpricedynamics May2012 5/54

Description:
Logit price dynamics James Costain and Anton Nakov Banco de Espana,~ Federal Reserve Board May 2012 Costain and Nakov (BdE & FRB) Logit price dynamics May 2012 1 / 54
See more

The list of books you might like

Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.