Menu Costs, Aggregate Fluctuations, and Large Shocks
| Autor: | Adam Reiff, Peter Karadi |
|---|---|
| Rok vydání: | 2019 |
| Předmět: |
Inflation
Computer Science::Computer Science and Game Theory Stochastic volatility monetary policy transmission price change distribution state-dependent pricing value-added tax media_common.quotation_subject Aggregate (data warehouse) TheoryofComputation_GENERAL jel:E52 Conditional probability distribution jel:E31 Menu cost Microeconomics Econometrics Economics Price setting Price level General Economics Econometrics and Finance media_common |
| Zdroj: | American Economic Journal: Macroeconomics. 11:111-146 |
| ISSN: | 1945-7715 1945-7707 |
| DOI: | 10.1257/mac.20160054 |
| Popis: | In menu cost models, real effects of aggregate nominal shocks are sensitive to unobserved characteristics of price setting. The standard way to calibrate key pricing parameters is to match the cross-sectional distribution of price changes. We argue that this unconditional distribution contains insufficient information for a clean identification. In particular, it is consistent with parameterizations with contradictory aggregate implications: one generating sizeable real effects, the other effective money neutrality. We argue, instead, that price change observations conditional on aggregate shocks can be sufficiently informative. To show this, we utilize new micro level evidence on price responses to large value-added tax shocks. We present a new menu cost model with idiosyncratic shocks and show that our model successfully predicts the magnitude of the observed price responses, outperforming alternative pricing models. The new model generates small real effects of monetary policy shocks implying that imposing the menu cost assumption alone fails to explain robust time-series evidence finding the opposite. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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