Inflation Dynamics During the Financial Crisis / Simon Gilchrist, Raphael Schoenle, Jae Sim, Egon Zakrajšek.

Format:

Book

Author/Creator:

Gilchrist, Simon.

Contributor:

National Bureau of Economic Research.

Schoenle, Raphael.

Sim, Jae.

Zakrajšek, Egon.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22827.

NBER working paper series no. w22827

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

Using a novel dataset, which merges good-level prices underlying the PPI with the respondents' balance sheets, we show that liquidity constrained firms increased prices in 2008, while their unconstrained counterparts cut prices. We develop a model in which firms face financial frictions while setting prices in customer markets. Financial distortions create an incentive for firms to raise prices in response to adverse financial or demand shocks. This reaction reflects the firms' decisions to preserve internal liquidity and avoid accessing external finance, factors that strengthen the countercyclical behavior of markups and attenuate the response of inflation to fluctuations in output.

Notes:

Print version record

November 2016.