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Home | Events Archive | Hotelling Meets Keynes: Aggregate Adjustment with Spatial Frictions and Nominal Rigidity
Seminar

Hotelling Meets Keynes: Aggregate Adjustment with Spatial Frictions and Nominal Rigidity

  • Series
    Macro Seminars
  • Speaker(s)
    Stephanie Schmitt-Grohé (Columbia University, United States)
  • Field
    Macroeconomics
  • Location
    Tinbergen Institute Amsterdam, room 1.61
    Amsterdam
  • Date and time

    May 19, 2025
    16:00 - 17:15

Abstract

This paper embeds a circular Hotelling model of spatial competition into a new-Keynesian model with staggered price setting. The resulting framework provides microfoundations for a cost-push shock, taking the form of random variations in transportation costs. An increase in transportation costs raises price markups and is contractionary and inflationary. Spatial frictions also have consequences for the propagation of aggregate demand disturbances (including monetary shocks), as they dampen their output effects and amplify their inflationary effects. Empirically, the paper shows that the cost of time spent shopping represents a significant fraction of consumption expenditure, suggesting that spatial frictions broadly defined are a nonnegligible feature of aggregate demand.