We provide a nonlinear characterization of the macroeconomic impact of microeconomic productivity shocks in terms of reduced-form non-parametric elasticities for efficient economies. We also show how microeconomic parameters are mapped to these reduced-form general equilibrium elasticities. In...

Households typically know their nominal wages precisely, but only have a vague idea about he price of the goods and services they consume. Conditional on their nominal wage, this means that inflation is bad news and deflation is good news. If households face Knightian uncertainty about the price...