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Distributional dynamics under smoothly state-dependent pricing

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  • Costain, James
  • Nakov, Anton

Abstract

Starting from the assumption that firms are more likely to adjust their prices when doing so is more valuable, this paper analyzes monetary policy shocks in a DSGE model with firm-level heterogeneity. The model is calibrated to retail price microdata, and inflation responses are decomposed into “intensive”, “extensive”, and “selection” margins. Money growth and Taylor rule shocks both have nontrivial real effects, because the low state dependence implied by the data rules out the strong selection effect associated with fixed menu costs. The response to sector-specific shocks is gradual, but inappropriate econometrics might make it appear immediate.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 6 ()
Pages: 646-665

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Handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:646-665

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Web page: http://www.elsevier.com/locate/inca/505566

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  1. Costain, James & Nakov, Anton, 2011. "Distributional dynamics under smoothly state-dependent pricing," Working Paper Series 1333, European Central Bank.
  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.
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  4. Caballero, Ricardo J. & Engel, Eduardo M.R.A., 2007. "Price stickiness in Ss models: New interpretations of old results," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 100-121, September.
  5. Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
  6. Bernardo Guimaraes & Kevin D. Sheedy, 2008. "Sales and monetary policy," LSE Research Online Documents on Economics 25492, London School of Economics and Political Science, LSE Library.
  7. Mirko Wiederholt & Emanuel Moench & Bartosz Maćkowiak, 2009. "Sectoral Price Data and Models of Price Setting," 2009 Meeting Papers 666, Society for Economic Dynamics.
  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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  10. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November.
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  16. Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers 896, Board of Governors of the Federal Reserve System (U.S.).
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  18. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
  19. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
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Citations

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Cited by:
  1. Robert G. King & Alexander Wolman & Michael Dotsey, 2009. "Inflation and Real Activity with Firm Level Productivity Shocks," 2009 Meeting Papers 367, Society for Economic Dynamics.
  2. Karadi, Peter & Reiff, Adam, 2012. "Large shocks in menu cost models," Working Paper Series 1453, European Central Bank.
  3. Guido Ascari & Argia M. Sbordone, 2013. "The macroeconomics of trend inflation," Staff Reports 628, Federal Reserve Bank of New York.
  4. Pirschel, Inske & Ahrens, Steffen & Snower, Dennis, 2013. "Loss Averse Consumers: An Alternative Theory of Price Adjustment," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79793, Verein für Socialpolitik / German Economic Association.
  5. James Costain & Anton Nakov, 2011. "Distributional dynamics under smoothly state-dependent pricing," Finance and Economics Discussion Series 2011-50, Board of Governors of the Federal Reserve System (U.S.).
  6. Etienne Gagnon & David López-Salido & Nicolas Vincent, 2012. "Individual Price Adjustment along the Extensive Margin," NBER Chapters, in: NBER Macroeconomics Annual 2012, Volume 27, pages 235-281 National Bureau of Economic Research, Inc.
  7. Mina Kim & Deokwoo Nam & Jian Wang & Jason Wu, 2013. "International Trade Price Stickiness and Exchange Rate and Pass-Through in Micro Data: A Case Study on US-China Trade," Working Papers 202013, Hong Kong Institute for Monetary Research.
  8. Steffen Ahrens & Matthias Hartmann, 2014. "State-dependence vs. Time-dependence: An Empirical Multi-Country Investigation of Price Sluggishness," Kiel Working Papers 1907, Kiel Institute for the World Economy.
  9. James Costain & Antón Nákov, 2008. "Price adjustments in a general model of state-dependent pricing," Banco de Espa�a Working Papers 0824, Banco de Espa�a.
  10. Mina Kim & Deokwoo Nam & Jian Wang & Jason Wu, 2013. "International trade price stickiness and exchange rate pass-through in micro data: a case study on U.S.–China trade," Globalization and Monetary Policy Institute Working Paper 135, Federal Reserve Bank of Dallas.

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