Hi!

I am studying a simple New Keynesian model. I have one small question. Could you please let me know?

When a firm reoptimizes the price P*, it only considers that P* will go on forever.

Therefore, we just differentiate that case only when the probability theta repeats.

But I think it is possible P* can also exist. For example, if P* remains two periods and then the firm reoptimzes at that time. This kind of cases could be countless.

I do not understand why Gali’s book does not consider those cases.

Thank you.