Why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption; here it is a result. We use search theory, with two consequences: prices are set in dollars, since money is the medium of exchange; and...

Arguably the most difficult question in macroeconomics is: why do individuals set prices in nominal terms that do not respond to changes in the aggregate price level? Of course some must respond, or the aggregate does not change, but many prices seem sticky in the short run. In popular macro...

Why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption; here it is a result. We use search theory, with two consequences: prices are set in dollars, since money is the medium of exchange; and...

Why do some sellers set prices in nominal terms that do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption. Here it is a result. We use search theory, with two consequences: prices are set in dollars since money is the medium of exchange; and...

Conventional wisdom is that inflation makes people spend money faster, trying to get rid of it like a “hot potato,” and this is a channel through which inflation affects velocity and welfare. Monetary theory with endoge- nous search intensity seems ideal for studying this. However, in...

Conventional wisdom is that inflation makes people spend money faster, trying to get rid of it like a “hot potato,” and this is a channel through which inflation affects velocity and welfare. Monetary theory with endogenous search intensity seems ideal for studying this. However, in standard...

Inflation and unemployment are central issues in macroeconomics. While much progress has been made on these issues by incorporating frictions using search theory, existing models analyze either unemployment or inflation. We develop a framework to analyze unemployment and inflation together. This...

There are two facts about the world that we take as given: First the "law of one price" is false -- one can find many different prices for what appears to be, beyond reasonable doubt, the same good. Second, prices are set in nominal terms and appear, beyond reasonable doubt, to be sticky -- some...

We study the long-run relation between money, measured by inflation or interest rates, and unemployment. We first discuss data, documenting a strong positive relation between the variables at low frequencies. We then develop a framework where both money and unemployment are modeled using...