Heterogeneity and Output Fluctuations in a Dynamic Menu-Cost Economy.

In this paper, the authors study the dynamic behavior of a menu-cost economy where firms are heterogeneous. In this contex t, they generalize the Caplin and Spulber (1987) monetary-neutrality result; show that uniqueness of equilibria depends on the degree of dispersion of firms' positions in their price cycle; characterize the path of output outside the steady state and show that as strateg ic complementarities become more important, expansions become longer an d smoother than contractions; and show that the potential impact of monetary shocks increases in the distance of the economy from its steady state but that an uninformed policymaker will have no effect on output on average. Copyright 1993 by The Review of Economic Studies Limited.