Title page
Contents
Abstract 2
1. Introduction 3
2. Model: Sticky Prices with Information Acquisition 8
2.1. Households 9
2.2. Firms' Production, Pricing, and Profits 10
2.3. Firms' Costly Information Acquisition 11
2.4. The Firm's Problem 11
2.5. Equilibrium 12
3. Firms' Information Acquisition 12
3.1. Optimal Information Acquisition 12
3.2. The Economic Forces That Shape Optimal Uncertainty 14
3.3. Selection and Uncertainty 17
4. Implications for Monetary Non-Neutrality 17
4.1. From Firm-Level Price Gaps to The Aggregate Output Gap 18
4.2. Characterization of Lifetime Output Gaps 19
4.3. The Propagation of Monetary Shocks 21
4.4. Comparative Statics for Monetary Non-Neutrality 23
5. Identification of the Real Effects of Monetary Policy 25
5.1. The Distributions of Uncertainty and Pricing Durations Are Sufficient for Identification 25
5.2. Data on Price Changes Are Insufficient for Identification 26
6. Using Survey Data to Quantify and Test the Model 27
6.1. Survey Data on Firms' Uncertainty and Pricing Duration 27
6.2. The Quantitative Impact of Uncertainty and Selection 28
6.3. Robustness: Heterogeneity, Measurement Error, and General Time-Dependence 31
7. Counterfactuals: How Microeconomic Volatility and Price Stickiness Affect Monetary Non-Neutrality 34
7.1. Microeconomic Volatility 34
7.2. Price Stickiness 36
8. Conclusion 37
References 38
Appendices 41
A. Proofs 41
B. Additional Figures and Tables 50
Table 1. Estimates of Sectoral Heterogeneity in Uncertainty and Marginal Cost Volatility 32
Figure 1. Comparative Statics of Optimal Reset Uncertainty in Model Parameters 15
Figure 2. Contribution of a Single Firm to Monetary Non-Neutrality 20
Figure 3. Distributions of Firms' Subjective Uncertainty in the Data and the Model 29
Figure 4. Estimated Monthly Cumulative Impulse Responses to an Initial 1 Percentage Point Output Gap under Different Scenarios 30
Figure 5. Microeconomic Volatility, Price Stickiness, and Monetary Non-Neutrality 35
Table B.1. The Relationship Between Uncertainty and Time Since Changing Price 52
Figure B.1. Expected Duration of Next Price Changes and Kalman Gains 50
Figure B.2. Distribution of Price Reset Opportunities and the Hazard Rate 50
Figure B.3. Uncertainty Distribution with Measurement Errors 51
Figure B.4. Uncertainty Distribution under Calvo 51
Figure B.5. Firms That Recently Changed Their Prices Are Less Uncertain 52
Figure B.6. Overidentification Test for ΔSelect = D 53
Figure B.7. CIR Decomposition with Measurement Errors and Calvo Pricing 53
Figure B.8. Microeconomic Volatility, Price Stickiness, Discount Rate, and Monetary Non-Neutrality 54
Figure B.9. Microeconomic Volatility, Price Stickiness, and Monetary Non-Neutrality 55