Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215100 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8098
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper develops an algorithm that enables to solve macroeconomic models with Rotemberg pricing and imperfect common knowledge. Under the concept of imperfect common knowledge, Rotemberg pricing requires the solution algorithm to take prices explicitly into account. The state space includes the hierarchy of average higher-order expectations as well as the aggregate price level. In addition to determining the usual policy functions of output, inflation, and the nominal interest rate, the algorithm has to search for the policy function of the aggregate price and for the policy function of the firm-specific price.
Subjects: 
Rotemberg pricing
dispersed information
heterogenous beliefs
Kalman filter
higher-order expectations
JEL: 
C63
D82
E31
Document Type: 
Working Paper
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