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Abstract

We document the response of the individual components of the Producer Price Index (PPI) to commonly used measures of monetary shocks, and show that these responses are at variance with many widely-used “macro” models of monetary non-neutrality. Monetary shocks are shown to have large relative price effects, resulting in an increase in the dispersion of the cross-section distribution of prices. Furthermore, in response to a contractionary (expansionary) monetary shock, a substantial number of prices tend to rise (fall). Most of the existing models of monetary nonneutrality are not capable of replicating these types of relative price responses.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 29 (2007)
Issue (Month): 1 (March)
Pages: 19-36

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Handle: RePEc:eee:jmacro:v:29:y:2007:i:1:p:19-36

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Web page: http://www.elsevier.com/locate/inca/622617

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Cited by:

1. Davis, George K. & Hineline, David & Kanago, Bryce E., 2011. "Inflation and real sectoral output shares: Dynamic panel model evidence from seven OECD countries," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 607-619.
2. Boivin, Jean & Giannoni, Marc & Mihov, Ilian, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," CEPR Discussion Papers 6101, C.E.P.R. Discussion Papers.
   
   • Jean Boivin & Marc P. Giannoni & Ilian Mihov, 2009. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," American Economic Review, American Economic Association, vol. 99(1), pages 350-84, March.
   • Jean Boivin & Marc Giannoni & Ilian Mihov, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data," NBER Working Papers 12824, National Bureau of Economic Research, Inc.
3. Enders, Zeno, 2012. "Heterogeneous consumers, segmented asset markets, and the effects of monetary policy," Working Papers 0537, University of Heidelberg, Department of Economics.
   
   • Zeno Enders, 2010. "Heterogeneous consumers, segmented asset markets,and the effects of monetary policy," Bonn Econ Discussion Papers bgse08_2010, University of Bonn, Germany.
4. Abdul Karim, Zulkefly & Zaidi, Mohd Azlan Shah & W.N.W, Azman-Saini, 2011. "Relative price effects of monetary policy shock in Malaysia: a svar study," MPRA Paper 38768, University Library of Munich, Germany.
5. Balke, Nathan S. & Wynne, Mark A., 2007. "The relative price effects of monetary shocks," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 19-36, March.
   
   • Nathan S. Balke & Mark A. Wynne, 2003. "The relative price effects of monetary shocks," Working Papers 03-06, Federal Reserve Bank of Dallas.
6. Jean Boivin & Marc P. Giannoni & Ilian Mihov, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data," CFS Working Paper Series 2007/14, Center for Financial Studies.
7. Christiane Baumeister & Philip Liu & Haroon Mumtaz, 2012. "Changes in the Effects of Monetary Policy on Disaggregate Price Dynamics," Working Papers 12-13, Bank of Canada.
   
   • Baumeister, Christiane & Liu, Philip & Mumtaz, Haroon, 2013. "Changes in the effects of monetary policy on disaggregate price dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 543-560.

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