Abstract

We propose a new method to analyze the propagation of a once and for all shock in a large class of sticky price models. The method is based on the eigenvalue-eigenfunction representation of the cross-sectional process for price adjustments and provides a thorough characterization of the entire impulse response function for any moment of interest. We use the method to discuss several substantive applications, such as (i) a general analytic characterization of “selection effects”, (ii) parsimonious representation of the impulse response function and (iii) volatility shocks in monetary models. We conclude by showing the method can also be applied to models featuring asymmetric return functions and asymmetric law of motion for the state