| Nominal rigidities play an important role in the literature of macroeconomic fluctuations, however in the current standard model, the degree of nominal rigidities does not vary in response to the state of the economy. It is exogenously imposed. The first chapter endogenizes the degree of nominal rigidities in an otherwise standard model. The model extends Calvo (1983) time-dependent pricing to incorporate state-dependent features in pricing, while preserving tractability. The pricing scheme delivers a generalized New Keynesian Phillips curve with an explicit role for the frequency of price revisions. The model's novel feature shows that inflation responds to movements of relative prices and to endogenous fluctuations in the average frequency of price adjustment. The model offers, therefore, a microfounded rationale for systematic deviations in the inflation-marginal cost relation predicted by the new Keynesian Phillips curve. As a byproduct, the model determines endogenously the short-run slope of the Phillips curve. Simulations predict weaker responses of output and stronger responses of inflation to technology, preference and monetary shocks than those of a close time-dependent model.;In the second chapter I use the model to rationalize empirical regularities found for countries going through large disinflation programs. In particular, the second chapter studies the role of nominal rigidities to explain business cycle fluctuations associated with ex change rate-based (ERB) disinflations and money-based (MB) disinflations within a single framework. Empirical regularities from high-inflation economies, especially in Latin America, suggest that ERB and MB disinflations induce sharply different dynamics in consumption and GDP. By building on Calvo (1983) pricing theory, the model introduces elements of state-dependent pricing at the firm level into an otherwise standard small open economy model. This new feature allows for endogenous variations in the aggregate degree of nominal rigidities. The model contains a special case of time-dependent pricing discussed in the literature. Nonlinear simulations show that the model with state-dependent nominal rigidities generates a dynamic behavior that is more consistent with the empirical evidence, compared to the model with time-dependent pricing. |
