TY  - JOUR
AU  - Gilchrist, Simon
AU  - Schoenle, Raphael
AU  - Sim, Jae
AU  - Zakrajšek, Egon
TI  - Inflation Dynamics During the Financial Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 22827
PY  - 2016
Y2  - November 2016
DO  - 10.3386/w22827
UR  - http://www.nber.org/papers/w22827
L1  - http://www.nber.org/papers/w22827.pdf
N1  - Author contact info:
Simon Gilchrist
Department of Economics
New York University
19 West 4th Street.
New York, NY, 10003
Tel: 212 992 9770
Fax: NA
E-Mail: sg40@nyu.edu

Raphael Schoenle
Brandeis University
Department of Economics
415 South Street
Waltham, MA 02454
E-Mail: schoenle@brandeis.edu

Jae Sim
Division of Research & Statistics
Federal Reserve Board
20th Street & Constitution Avenue, NW
Washington, D.C. 20551 
E-Mail: jae.w.sim@frb.gov

Egon Zakrajšek
Division of Monetary Affairs
Federal Reserve Board
20th Street & Constitution Avenue, NW
Washington, D.C. 20551
Tel: 202/728-5864
Fax: 202/452-2846
E-Mail: egon.zakrajsek@frb.gov
AB  - Using a novel dataset, which merges good-level prices underlying the PPI with the respondents’ balance sheets, we show that liquidity constrained firms increased prices in 2008, while their unconstrained counterparts cut prices. We develop a model in which firms face financial frictions while setting prices in customer markets. Financial distortions create an incentive for firms to raise prices in response to adverse financial or demand shocks. This reaction reflects the firms’ decisions to preserve internal liquidity and avoid accessing external finance, factors that strengthen the countercyclical behavior of markups and attenuate the response of inflation to fluctuations in output.
ER  -