Xiaojie liu

This paper develops a model of monetary non-neutrality driven by information asymmetry about marginal costs in a sequential search framework. With only consumer-side frictions, this approach is distinguished from the standard one that relies on firm-side pricing frictions. Information asymmetry causes demand for individual good to depend on perceived relative price. As a result, the passthrough of aggregate shocks to prices is incomplete. The key mechanism is that, following a monetary shock, consumers attribute some of the resulting price changes to firms’ idiosyncratic shocks, inducing them to search for alternatives. To dissuade search, firms limit the extent to which they pass the shock through to prices. Consistent with the mechanism, higher inflation is associated empirically with measures of more active consumer search. Additionally, I develop a measure for county-level search frictions and show that regions with higher search frictions exhibit lower passthrough of shocks. Calibration of the model further demonstrates substantial monetary non-neutrality.

Technological advance is often embodied in capital inputs, like computers, airplanes, and robots. This paper builds a framework where capital inputs advance through (i) increased automation and (ii) increased productivity. The interplay of these two innovation dimensions can produce balanced growth, satisfying the Uzawa Growth Theorem even though technological progress is capital-embodied. The framework can further address structural transformation, general-purpose technologies, the limited macroeconomic impact of computing, and declining productivity growth and labor shares. Overall, this tractable framework can help resolve puzzling tensions between micro-level observations of innovation and balanced growth while providing new perspectives on numerous macroeconomic phenomena.