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Understanding the determinants of individual price setting behavior is crucial for the formulation of monetary policy, especially in an economy experiencing ongoing structural change. These behavioral mechanisms play a fundamental role in influencing the characteristics of aggregate inflation and in determining how monetary policy affects inflation and real economic activity. Thus, this line of research can strengthen the conceptual foundations of general equilibrium models with sticky prices, enabling these models to provide monetary policymakers with an increasingly useful framework for interpreting and forecasting the evolution of the macro-economy.
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