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Multi-Sector Menu Cost Model, Decreasing Hazard, and Phillips Curve

February 2007
Hidetaka Enomoto*1

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This paper generalizes the Golosov-Lucas model (GL model), a single sector menu cost model with idiosyncratic productivity shocks, to multisector setting. While the GL model matches some empirical facts, it cannot mimic decreasing hazard functions for price changes, which are observed in many countries. With realistic parameters, the simulation results of the generalized GL model show many features observed in empirical evidences such as decreasing hazard rates. In addition, the simulation results with monetary shocks show flattening of the Phillips curve in a low inflation environment.

Menu Cost Models, Hazard Functions, Phillips Curve

JEL Classification: E30

I would like to thank Naohito Abe, Hiroshi Fujiki, Ippei Fujiwara, Mikhail Golosov, Hideo Hayakawa, Masahiro Higo, Hibiki Ichiue, Munehisa Kasuya, Emi Nakamura, Koji Nakamura, Kenji Nishizaki, Kyosuke Shiotani, Shigenori Shiratsuka, Toyoichiro Shirota, Yutaka Soejima, Jon Steinsson, Nao Sudou, Tomohiro Sugo, Takayuki Tsuruga and seminar participants at the Bank of Japan for their helpful comments. I would also like to thank Mototsugu Shintani for his helpful comments on the earlier draft. Views expressed in this paper are those of author and do not necessarily reflect those of the Bank of Japan or its Research and Statistics Department.

  • *1 Research and Statistics Department, Bank of Japan


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