Learning-by-doing and endogenous price-level inertia

This can have important consequences for the ability of these models to pre- dict the response of the economy to changes in the economic environment, especially to changes in monetary policy. [...] Since the duration of price stickiness and the degree of staggering of pricing decisions in‡uence the response of aggregate variables in the model one may not end up with sensible predictions regarding how the economy will respond to these changes. [...] Organizational capital refers to the information accumulated by the …rm in the process of past produc- tion regarding how best to organize its production activities and deploy its inputs.8 As a result, the higher the level of organizational capital, the more productive the …rm. [...] The term ( 1 )Yit¡ represents the reduction in output due to the higher price, 1 ´ Pit while ©0Y (Hit; Yit) represents the reduction in Hit+1due to the reduction in output which must be evaluated at ¸Ft ; the marginal value of organizational capital to the …rm. [...] Equation (20) states that the consumer should choose to save nominal balances to the point that the current net bene…t of saving an additional dollar (which is made up of the marginal utility lost due to lower current consumption minus the marginal utility gained due to higher money balances) is just equal to the discounted expected bene…t next period( com- posed of the marginal utility of the ext