Title: Reviving Micro Real Rigidities: The Importance of Demand Shocks

Speaker: Eugene Oue, Research Assistant Professor at the Hong Kong Polytechnic University. He received his Ph.D. in Economics from the University of Maryland in 2023, where he was advised by Boraan Aruoba, Luminita Stevens, and Felipe Saffie. He is a macroeconomist with broad interests in household economics, inequality, monetary economics, innovation and entrepreneurship, and international economics.

Abstract: We revisit the role of micro real rigidities as a driver of monetary non-neutrality, using a simple menu-cost model featuring non-constant elasticity of demand with both idiosyncratic productivity and demand shocks. The model is calibrated to match firm-level productivity and demand processes estimated from U.S. data. Despite its simplicity, the calibrated model overturns prior negative findings in the literature on micro real rigidities and generates sizeable monetary non-neutrality comparable to alternative frameworks. Additionally, the model reproduces untargeted pricing dynamics and a markup distribution consistent with U.S. microdata. As a result, this framework effortlessly unifies pricing, markup behavior, and firm dynamics. The key to reconciling firm-level and pricing dynamics lies in the interaction between non-constant demand elasticity and idiosyncratic demand shocks.

Date & time: 3 January 2025, 14:30

Venue: B336, Zhixin Building, Central Campus, Shandong University