Technical Report Product Cycles and Prices : Search Foundation

Dong, Mei  ,  Teranishi, Yuki

This paper develops a price model with a search foundation based on product cycles and prices. Observations conclude that firms match with a new product, then set a new price through negotiation and fix the price until the product exits from a market. This evident behavior results in a new model of price stickiness as a Search-based Phillips curve. The model includes a New Keynesian Phillips curve with Calvo's price adjustment as a special case and describes new phenom- ena. First, new parameters and variables of a frictional goods market determine price dynamics. As separation rate in a goods market decreases, price becomes more sticky, i.e., a atter slope in a Search-based Phillips curve, since the product turnover cycle is sluggish. Moreover, other goods market features, such as proba- bility of match, elasticity of match, and bargaining power for a price setting decide price dynamics. Second, goods market friction can make endogenously persistent in ation dynamics without an assumption of indexation to a lagged in ation rate. Third, when the number of a product persistently increases, de ation continues for a long period. It can explain a secular de ation.
2012~2016年度科学研究費補助金[基盤研究(S)]「長期デフレの解明」(研究代表者 東京大学経済学研究科・渡辺努, 課題番号:24223003)

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