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Hi Nick,

On the issue of selection effects of price changers Midrigan (https://files.nyu.edu/vm50/public/Virgiliu_Midrigan_files/multiproduct_menucosts.pdf) did a nice response paper to Golosov and Lucas (http://citeseerx.ist.psu.edu/viewdoc/download?doi=

The idea behind GL was that subject to a monetary base increase (and a gaussian idiosyncratic shock), the sample of firms that want to adjust prices is made of firms that want to adjust the price by most. Therefore monetary policy has very short lived effects. The idea behind Midrigan, aside from other issues not directly related, is that (using the same sample as GL) the price changes that we observe are not consistent with GL. GL generates a bimodal distribution with most of the mass around the two modes, because firms that update price only want to either increase by "a lot" or decrease by "a lot". Midrigan points out that the changes in prices observed are more or less bell shaped. To generate this distribution he adopts a leptokurtic idiosyncratic shock, and the selection effect of price changers is very small then.

To put it up briefly, to replicate the data that we have on price changes the selection effect due to menu costs must be small, since in the data we do observe lots of small price changes. In this slides he compares the two models http://virgiliu.weebly.com/uploads/1/3/9/8/13982648/lecture_selection.pdf.

Roger: thanks for your comment, and for sending me those links.

On a very quick skim, the GL model looks similar to Caplin and Spulber, with real shocks added. And M is saying that most price changes are temporary sales, where the price returns to its previous level (which is a puzzle, of course, for all standard models).

I will reflect on these.

Hi Nick,

Yes, I didn't remember if it was in the article, but I looked it up now. M motivates the temporary price increases vs "permanent" at the end of page nine, and supports it with the following citation on page ten (from some other field study):

“... I was a territory manager so I had no pricing authority. The only authority I had was to
go to my boss and I would say, ‘OK., here is the problem I’ve got.’ He would say ‘Fill out a request
and we will lower the price for that account.’ So this is how the pricing negotiations went. At that
time I went up the chain to make any kind of adjustments I had to make... My five guys have a
certain level [of discount] they can go to without calling me. When they get to the certain point
they have to get my approval....”

It has been 6 years out of the biology game for me, so I hope I am not to out of the loop, but to expand on Jeremy Fox's explanation- the majority of mutations are actually neutral/benign (occurring in non coding sections or mutations that didn't alter functionality or phenotype), and that big mutations become more valuable (relatively) when there is a change in equilibrium (for the same reasons as listed above a change in equilibrium is much more likely to move optimal fitness farther from current fitness than closer). This is why there still are big mutations but at a much lower rate and why they haven't been all but eliminated from the pool. The optimal mutation strategy for something that lays a million eggs will (pulling the percentages out of me bum) be something like 80% have no or neutral mutation, 19% small mutations and 1% big mutations.

One lesson you could draw from it is that if you eliminate or limit the big mutation number the organism/system will become more fragile not more robust, as its ability to react to equilibrium changes is greatly diminished.

Fisher's geometric model and the Calvo Phillips curve...Never change, Nick. ;-)

Jeremy: you found it! Your comment had stuck in my mind. The Fisher thing is so brilliant.

bacon: interesting. Another idea for me to reflect on.

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