Artikel
Bounds on price-setting
I study a class of macroeconomic models in which all firms can costlessly choose any price at each date from an interval (indexed to last period's price level) that includes a positive lower bound. I prove three results that are valid for any such half-closed interval (regardless of how near zero the left endpoint is). First, given any output sequence that is uniformly bounded from above by the moneyless equilibrium output level, that bounded output sequence is an equilibrium outcome for a (possibly time-dependent) specification of monetary and fiscal policy. Second, given any specification of monetary and fiscal policy in which the former is time-invariant and the latter is Ricardian (in the sense of Woodford 1995), there is a sequence of equilibria in which consumption converges to zero on a date-by-date basis. These first two results suggest that standard macroeconomic models without pricing bounds may provide a false degree of confidence in macroeconomic stability and undue faith in the long-run irrelevance of monetary policy. This paper's final result constructs a non-Ricardian nominal framework (in which the long-run growth rate of nominal government liabilities is sufficiently high) that pins down a unique stable real outcome as an equilibrium.
- Language
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Englisch
- Bibliographic citation
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Journal: Theoretical Economics ; ISSN: 1555-7561 ; Volume: 16 ; Year: 2021 ; Issue: 3 ; Pages: 979-1015 ; New Haven, CT: The Econometric Society
- Classification
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Wirtschaft
Monetary Policy
Policy Objectives; Policy Designs and Consistency; Policy Coordination
Fiscal Policy
- Subject
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Pricing bounds
monetary policy
fiscal policy
- Event
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Geistige Schöpfung
- (who)
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Kocherlakota, Narayana Rao
- Event
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Veröffentlichung
- (who)
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The Econometric Society
- (where)
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New Haven, CT
- (when)
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2021
- DOI
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doi:10.3982/TE4367
- Handle
- Last update
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10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Kocherlakota, Narayana Rao
- The Econometric Society
Time of origin
- 2021
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On asymmetric reserve prices
Out of bounds
On setting day-ahead equity trading risk limits
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Price Setting and Price Adjustment in Some European Union Countries
Setting Fair Prices – Fundamental Principle Of Sustainable Marketing
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Price-Setting Behaviour in Switzerland: Evidence from CPI Micro Data
CREDIT CONSTRAINTS, ENDOGENOUS INNOVATIONS, AND PRICE SETTING IN INTERNATIONAL TRADE
Monetary Policy and Asset Prices: When Cleaning Up Hits the Zero Lower Bound
Good-deal bounds for option prices under value-at-risk and expected shortfall constraints
The nexuses between budget deficit and price inflation in Pakistan: An ARDL bound testing approach
On asymmetric reserve prices
Out of bounds
On setting day-ahead equity trading risk limits