Economic fluctuations and growth.

• Position: Bureau News - National Bureau of Economic Research's program

The NBER's Program on Economic Fluctuations and Growth held its fall research meeting on October 17 in Chicago. Mark Gertler, NBER and New York University, and Patrick Kehoe, Federal Reserve Bank of Minneapolis, organized this program:

Mikhail Golosov, University of Minnesota, and Robert E. Lucas, Jr., NBER and University of Chicago, "Menu Costs and Phillips Curves" Discussant: Ricardo J. Caballero, NBER and MIT

Harold L. Cole, University of California, Los Angeles; Ron Leung, University of Minnesota; and Lee E. Ohanian, NBER and University of California, Los Angeles, Deflation, Real Wages, and the International Great Depression: A Productivity Puzzle" Discussant: Lawrence Christiano, NBER and Northwestern University

Marc P. Giannoni, Columbia University, and Michael Woodford, NBER and Princeton University, "Optimal Inflation Targeting Rules" Discussant: Varadarajan Chari, NBER and University of Minnesota

Raphael Bergoeing, Universidad de Chile, and Timothy J. Kehoe, University of Minnesota, "Trade Theory and Trade Facts" Discussant: Donald R. Davis, NBER and Columbia University

Richard Rogerson, NBER and Arizona State University, "Structural Transformation and the Deterioration of European Labor Market Outcomes" Discussant: Daron Acemoglu, NBER and MIT

Martin Lettau, Sydney C. Ludvigson, and Jessica A. Wachter, NBER and New York University, "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?" Discussant: John H. Cochrane, NBER and University of Chicago

Golosov and Lucas develop a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation. Sellers can change price only by incurring a real "menu cost." The authors calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new U.S. dataset of individual prices from Klenow and Kryvtsov. The prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with the Israeli evidence obtained by Lach and Tsiddon. The model also is used to conduct numerical experiments on the economy's response to credible and incredible disinflations and to other shocks. In none of the simulations conducted did monetary shocks induce large or persistent real responses.

The high real wage story is one of the leading hypotheses for how deflation caused the International Great Depression. The story is that worldwide deflation, combined with...