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This paper studies the determinants of the cyclicality of TFPR. The distribution of TFPR is dependent upon exogenous shocks and the endogenous determination of prices. An overlapping generations model studies the factors that shape the TFPR distribution. We focus on three data patterns: (i) countercyclical dispersion of TFPR, (ii) countercyclical dispersion of price changes and (iii) countercyclical frequency of price adjustment. These patterns are matched if there are negatively correlated shocks to the mean and dispersion of TFPQ or if the monetary authority responds to shocks to the dispersion of TFPQ by "leaning against the wind."
