This paper investigates the welfare properties of equilibrium indexation in a decentralized economy. If indexation is costless, so that all firm s index, then the equilibrium degree of indexation is efficient. But if indexation is costly and this leads some firms not to index, equi librium...

Nominal price rigidity has a negative externality: rigidity in one firm's price increases the variability of aggregate real spending, which harms all firms. This paper investigates whether this externality is large, which would imply that stabilization policy can be highly beneficial even if the...

This paper proposes a theory of supply shocks, or shifts in the short-run Phillips curve, based on relative-price changes and frictions in nominal price adjustment. When price adjustment is costly, firms adjust to large shocks but not to small shocks, and so large shocks have disproportionate...