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Strategic complementarities as stochastic control under sticky price (2403.19847v1)
Published 28 Mar 2024 in econ.TH and math.OC
Abstract: We examine how monetary shocks spread throughout an economic model characterized by sticky prices and general equilibrium, where the pricing strategies of firms are interlinked, fostering a mutually beneficial relationship. In this dynamic equilibrium, pricing choices of firms are influenced by overall economic factors, which are themselves affected by these decisions. We approach this situation using a path integral control method, yielding several important insights. We confirm the presence and uniqueness of the equilibrium and scrutinize the impulse response function (IRF) of output subsequent to a shock affecting the entire economy.
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