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Impact of random monetary shock: a Keynesian case

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arxiv 2505.00800 v1 pith:XPZ6FYQZ submitted 2025-05-01 econ.TH

classification econ.TH
keywords strategyfirmoptimalconsumerkeynesianmarketmodelmonetary
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This study investigates the optimal strategy for a firm operating in a dynamic Keynesian market setting. The firm's objective function is optimized using the percent deviations from the symmetric equilibrium of both its own price and the aggregate consumer price index (CPI) as state variables, with the strategy in response to random monetary shocks acting as the control variable. Building on the Calvo framework, we adopt a mean field approach to derive an analytic expression for the firm's optimal strategy. Our theoretical results show that greater volatility leads to a decrease in the optimal strategy. To asses the practical relevance of our model, we apply it to four leading consumer goods firms. Empirical analysis suggests that the observed decline in strategies under uncertainty is significantly steeper than what the model predicts, underscoring the substantial influence of market volatility.

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Cited by 4 Pith papers

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