Title:	Computational Calibration and Simulation of a Menu-Cost Model
DNr:	NAISS 2025/22-1047
Project Type:	NAISS Small Compute
Principal Investigator:	Benjamin Larin <benjamin.larin@ju.se>
Affiliation:	Högskolan i Jönköping
Duration:	2025-08-11 – 2026-03-01
Classification:	50201
Keywords:

Abstract

I study price setting in macroeconomic models with nominal frictions, together with co-authors. We extend standard menu-cost models by introducing heterogeneity in firm labor shares, motivated by empirical patterns observed in Swedish micro data. This heterogeneity helps explain why firms differ in how frequently they change prices and how these differences affect the aggregate response to monetary policy. The model features forward-looking firms, non-linear adjustment costs, and idiosyncratic shocks. Solving the model involves computing dynamic firm behavior on a grid of state variables and aggregating across heterogeneous firms. Because the model does not admit analytical solutions, we have to numerically solve the dynamic program and the stochastic general equilibrium model with heterogeneous firms. Each simulation run takes 5–10 minutes for simple model versions on a single CPU core. We perform hundreds to thousands of such simulations across parameter grids to calibrate the model. This requires substantial computing resources to ensure timely progress and allow for systematic robustness checks. The project contributes to the literature on price rigidities, firm heterogeneity, and monetary policy transmission. The computational resources will be used to simulate, calibrate, and analyze this new model.