scholarly journals Pricing Under Fairness Concerns

2020 ◽  
Author(s):  
Erik Eyster ◽  
Kristóf Madarász ◽  
Pascal Michaillat
Keyword(s):  
Phillips Curve ◽  
New Keynesian ◽  
Technology Shocks ◽  
Impulse Responses ◽  
Price Increases ◽  
Keynesian Model ◽  
Long Run ◽  
Short Run ◽  
Fairness Concerns ◽  
Perceived Unfairness

Abstract This paper proposes a theory of pricing premised upon the assumptions that customers dislike unfair prices—those marked up steeply over cost—and that firms take these concerns into account when setting prices. Because they do not observe firms’ costs, customers must extract costs from prices. The theory assumes that customers infer less than rationally: When a price rises due to a cost increase, customers partially misattribute the higher price to a higher markup—which they find unfair. Firms anticipate this response and trim their price increases, which drives the passthrough of costs into prices below one: Prices are somewhat rigid. Embedded in a New Keynesian model as a replacement for the usual pricing frictions, our theory produces monetary nonneutrality: When monetary policy loosens and inflation rises, customers misperceive markups as higher and feel unfairly treated; firms mitigate this perceived unfairness by reducing their markups; in general equilibrium, employment rises. The theory also features a hybrid short-run Phillips curve, realistic impulse responses of output and employment to monetary and technology shocks, and an upward-sloping long-run Phillips curve.

JOB TURNOVER, TREND GROWTH, AND THE LONG-RUN PHILLIPS CURVE

2016 ◽  
Vol 21 (4) ◽  
pp. 835-861 ◽  
Author(s):  
Dennis J. Snower ◽  
Mewael F. Tesfaselassie
Keyword(s):  
Inflation Rate ◽  
Phillips Curve ◽  
New Keynesian ◽  
Job Turnover ◽  
Turnover Rates ◽  
Positive Effects ◽  
Keynesian Model ◽  
Long Run ◽  
Productive Growth ◽  
Trend Growth

The paper reexamines the long-run Phillips curve in a New Keynesian model with job turnover and trend productivity growth. We show that an increase in money growth has substantial positive effects on steady state output, consumption, and employment in the presence of (i) observed job turnover rates and, if consumption smoothing is sufficiently strong, (ii) observed productive growth rates. Furthermore, we show that the optimal inflation rate is slightly under 2% for reasonable calibrations of job turnover and trend growth.

scholarly journals Inflation dynamics analysis in selected MENA countries

2018 ◽  
Vol 6 (2) ◽  
pp. 160-168
Author(s):  
Tarek Kacemi ◽  
Sallahuddin Hassan
Keyword(s):  
Phillips Curve ◽  
Least Square ◽  
New Keynesian ◽  
Estimation Methods ◽  
Mena Countries ◽  
Ordinary Least Square ◽  
Pooled Mean Group ◽  
Long Run ◽  
Short Run ◽  
The Empirical Analysis

The current paper analyses the new Keynesian Phillips curve (NKPC) in the context of selected MENA countries over the 1990-2016 period. This study has used Pooled Mean Group (PMG) and Fully Modified Ordinary Least Square (FMOLS) estimation methods for the empirical analysis. For the dynamic heterogeneous panels, PMG developed by Pesaran et al. (1999) is the most suitable technique. The outcomes by FMOLS asserted that inflation and unemployment are unrelated in the long run, corroborating the long run Philips Curve theory. While, the empirical outcomes obtained by PMG indicate negative linkage between unemployment and inflation in the long run. Nevertheless, the notion of the tradeoff between the inflation and unemployment that expressed by a short-run Phillips curve is not observed in the selected MENA countries. The findings of this study corroborate the hybrid version of NKPC. Moreover, it establishes of the study suggest that the dynamic inflation can be used as a HNKPC model for understanding the inflation behavior in selected MENA countries.

scholarly journals A Behavioral New Keynesian Model

2020 ◽  
Vol 110 (8) ◽  
pp. 2271-2327 ◽  
Author(s):  
Xavier Gabaix
Keyword(s):  
Price Level ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Rational Model ◽  
Fiscal Stimulus ◽  
Forward Guidance ◽  
Keynesian Model ◽  
Long Run ◽  
Short Run ◽  
Monetary And Fiscal Policy

This paper analyzes how bounded rationality affects monetary and fiscal policy via an empirically relevant enrichment of the New Keynesian model. It models agents’ partial myopia toward distant atypical events using a new microfounded “cognitive discounting” parameter. Compared to the rational model, (i) there is no forward guidance puzzle; (ii) the Taylor principle changes: with passive monetary policy but enough myopia equilibria are determinate and economies stable; (iii) the zero lower bound is much less costly; (iv) price-level targeting is not optimal; (v) fiscal stimulus is effective; (vi) the model is “ neo-Fisherian” in the long run, Keynesian in the short run. (JEL E12, E31, E43, E52, E62, E70)

scholarly journals THE MACROECONOMIC EFFECTS OF INTEREST ON RESERVES

2013 ◽  
Vol 18 (6) ◽  
pp. 1271-1312 ◽  
Author(s):  
Peter N. Ireland
Keyword(s):  
Monetary Authority ◽  
New Keynesian ◽  
New Keynesian Model ◽  
The Real ◽  
Keynesian Model ◽  
Long Run ◽  
Short Run ◽  
Macroeconomic Effects ◽  
The Way

This paper uses a New Keynesian model with banks and deposits to study the macroeconomic effects of policies that pay interest on reserves. Although their effects on output and inflation are small, these policies require major adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish in the short run. In the long run, however, the additional freedom the monetary authority acquires by paying interest on reserves is best described as affecting the real quantity of reserves: policy actions that change prices must still change the nominal quantity of reserves proportionally.

scholarly journals LABOR MARKET DYNAMICS UNDER TECHNOLOGY SHOCKS: THE ROLE OF SUBSISTENCE CONSUMPTION

2021 ◽  
pp. 1-29
Author(s):  
Sangyup Choi ◽  
Myungkyu Shim
Keyword(s):  
Labor Market ◽  
Business Cycle ◽  
Developing Economies ◽  
Structural Var ◽  
Market Dynamics ◽  
Technology Shocks ◽  
Structural Factors ◽  
Long Run ◽  
Labor Market Dynamics ◽  
Short Run

This paper establishes new stylized facts about labor market dynamics in developing economies, which are distinct from those in advanced economies, and then proposes a simple model to explain them. We first show that the response of hours worked and employment to a technology shock—identified by a structural VAR model with either short-run or long-run restrictions—is substantially smaller in developing economies. We then present compelling empirical evidence that several structural factors related to the relevance of subsistence consumption across countries can jointly account for the relative volatility of employment to output and that of consumption to output. We argue that a standard real business cycle (RBC) model augmented with subsistence consumption can explain the several salient features of business cycle fluctuations in developing economies, especially their distinct labor market dynamics under technology shocks.

Long-Run Effects in Dynamic Systems: New Tools for Cross-Lagged Panel Models

2021 ◽  
pp. 109442812199322
Author(s):  
Ali Shamsollahi ◽  
Michael J. Zyphur ◽  
Ozlem Ozkok
Keyword(s):  
Recent Work ◽  
Dynamic Systems ◽  
Quantitative Methods ◽  
Simulated Dataset ◽  
Impulse Responses ◽  
Panel Models ◽  
Long Run ◽  
Short Run ◽  
User Friendly ◽  
Over Time

Cross-lagged panel models (CLPMs) are common, but their applications often focus on “short-run” effects among temporally proximal observations. This addresses questions about how dynamic systems may immediately respond to interventions, but fails to show how systems evolve over longer timeframes. We explore three types of “long-run” effects in dynamic systems that extend recent work on “impulse responses,” which reflect potential long-run effects of one-time interventions. Going beyond these, we first treat evaluations of system (in)stability by testing for “permanent effects,” which are important because in unstable systems even a one-time intervention may have enduring effects. Second, we explore classic econometric long-run effects that show how dynamic systems may respond to interventions that are sustained over time. Third, we treat “accumulated responses” to model how systems may respond to repeated interventions over time. We illustrate tests of each long-run effect in a simulated dataset and we provide all materials online including user-friendly R code that automates estimating, testing, reporting, and plotting all effects (see https://doi.org/10.26188/13506861 ). We conclude by emphasizing the value of aligning specific longitudinal hypotheses with quantitative methods.

scholarly journals Inflation and Unemployment Trade-off: Is Phillips Curve True for African Developing Countries? Evidence from Sudan

2021 ◽  
Vol 4 (3) ◽  
Author(s):  
Omer Allagabo Omer Mustafa
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Phillips Curve ◽  
Economic Thought ◽  
Trade Off ◽  
Long Run ◽  
Short Run ◽  
Wage Inflation ◽  
The Relationship

The relationship between wage inflation and unemployment (Phillips Curve) is controversial in economic thought, and the controversy is centered around whether there is always a trade-off or not. If this relationship is negative it is called The short-run Fillips Curve. However, in the long run, this relationship may probable not exist. The matter of how inflation and unemployment influence economic growth, is debatably among macroeconomic policymakers. This study examines the behavior of the Phillips Curve in Sudan and its effect on economic growth.

Animal Spirits, Persistent Unemployment, and the Belief Function

2013 ◽  
Author(s):  
Roger E. A. Farmer
Keyword(s):  
Unemployment Rate ◽  
Phillips Curve ◽  
Belief Function ◽  
New Keynesian ◽  
Monetary Model ◽  
Posterior Odds ◽  
John Maynard Keynes ◽  
Animal Spirits ◽  
Keynesian Model ◽  
Fiscal And Monetary Policy

This chapter examines the persistence of unemployment by drawing from John Maynard Keynes' two central ideas. The first idea is that any unemployment rate can persist as an equilibrium. The second is that the unemployment rate that prevails is determined by animal spirits. The chapter introduces a three-equation monetary model termed “Farmer monetary model,” which replaces the New Keynesian Phillips curve with a belief function that describes how agents form expectations of future nominal income. The chapter builds and estimates the Farmer monetary model using U.S. data for the period from the first quarter of 1952 to the fourth quarter of 2007. It compares the Farmer monetary model to a New Keynesian model by computing the posterior odds ratio. It shows that the posterior odds favor the Farmer monetary model and concludes by discussing the implications of this finding for fiscal and monetary policy.

scholarly journals Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence

2012 ◽  
Vol 102 (4) ◽  
pp. 1343-1377 ◽  
Author(s):  
Robert B Barsky ◽  
Eric R Sims
Keyword(s):  
Economic Activity ◽  
Causal Effect ◽  
New Keynesian ◽  
Consumer Confidence ◽  
Indirect Inference ◽  
Impulse Responses ◽  
Animal Spirits ◽  
Keynesian Model ◽  
Incremental Information ◽  
The Relationship

Innovations to consumer confidence convey incremental information about economic activity far into the future. Does this reflect a causal effect of animal spirits on economic activity, or news about exogenous future productivity received by consumers? Using indirect inference, we study the impulse responses to confidence innovations in conjunction with an appropriately augmented New Keynesian model. While news, animal spirits, and pure noise all contribute to confidence innovations, the relationship between confidence and subsequent activity is almost entirely reflective of the news component. Confidence innovations are well characterized as noisy measures of changes in expected productivity growth over a relatively long horizon. (JEL D12, D83, D84, E12)

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