Xiaojie liu

This paper develops a model of monetary non-neutrality driven by information asymmetry between consumers and firms about nominal 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. Consumers’ value of search is determined by their information about the price index, and firm’s elasticity of demand depends on the perceived relative price. The passthrough of aggregate shocks to prices is therefore incomplete. The key mechanism is that, following a monetary shock, consumers attribute some of the resulting price changes to firm-specific adverse shocks, inducing them to search for alternatives. To dissuade search, firms compress the markup and limit the passthrough of the shock. I further show that the output gap is proportional to the nowcast error of inflation in the Phillips curve. Despite its parsimonious nature, the calibrated dynamic general equilibrium model can generate substantial monetary non-neutrality. Consistent with the mechanism, higher inflation is associated empirically with more active consumer search.

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.