Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279338 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10587
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper aims to explore the impact of rising uncertainty on prices using micro-data on prices and multi-sector new Keynesian models. We identify diverse price responses to increasing macroeconomic uncertainty: goods with relatively flexible prices experience a decline due to lower demand caused by the rising uncertainty, while those with sticky prices experience an increase. The model suggests that economic uncertainty creates strategic complementarity for firms with sticky prices, prompting them to raise markups and prices in anticipation of potentially higher future inflation. These findings establish a connection between heightened uncertainty, higher core inflation, and increased profits.
Subjects: 
uncertainty
inflation
heterogeneity in price stickiness
micro-data on prices
New Keynesian
JEL: 
E52
E58
Document Type: 
Working Paper
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