We develop an analytically tractable Phillips curve based on state-dependent pricing. We differ from the existing literature by considering a local approximation around a zero inflation steady state and introducing idiosyncratic shocks. The resulting Phillips curve is a simple variation of the conventional time-dependent Calvo formulation, but with some important differences. First, the model is able to match the micro evidence on both the magnitude and timing of price adjustments.
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Gertler et al. (2006) studied this question.
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