IDEAS home Printed from https://ideas.repec.org/a/wly/jmoncb/v53y2021i1p41-72.html
   My bibliography  Save this article

The Skewness of the Price Change Distribution: A New Touchstone for Sticky Price Models

Author

Listed:
  • SHAOWEN LUO
  • DANIEL VILLAR

Abstract

We present a new way of empirically evaluating various sticky price models that are used to assess the degree of monetary nonneutrality. While menu cost models uniformly predict that price change skewness and dispersion fall with inflation, in the Calvo model, both rise. However, the U.S. Consumer Price Index (CPI) data from the late 1970s onward show that skewness does not fall with inflation, while dispersion does. We present a random menu cost model that, with a menu cost distribution that has a strong Calvo flavor, can match the empirical patterns. The model exhibits much more monetary nonneutrality than existing menu cost models.

Suggested Citation

  • Shaowen Luo & Daniel Villar, 2021. "The Skewness of the Price Change Distribution: A New Touchstone for Sticky Price Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(1), pages 41-72, February.
    • Handle: RePEc:wly:jmoncb:v:53:y:2021:i:1:p:41-72
    DOI: 10.1111/jmcb.12700
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jmcb.12700
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jmcb.12700?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 359-383.
    2. Fernando E. Alvarez & Francesco Lippi & Luigi Paciello, 2011. "Optimal Price Setting With Observation and Menu Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(4), pages 1909-1960.
    3. Mark J. Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 514-533, May.
    4. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    5. 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.
    6. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 171-199.
    7. James Costain & Anton Nakov, 2019. "Logit Price Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(1), pages 43-78, February.
    8. Joseph Vavra, 2014. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 215-258.
    9. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
    10. repec:oup:qjecon:v:129:y:2013:i:1:p:215-258 is not listed on IDEAS
    11. Anil K Kashyap, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 245-274.
    12. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2016. "The Real Effects of Monetary Shocks in Sticky Price Models: A Sufficient Statistic Approach," American Economic Review, American Economic Association, vol. 106(10), pages 2817-2851, October.
    13. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1415-1464.
    14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    15. Emi Nakamura & Jón Steinsson & Patrick Sun & Daniel Villar, 2018. "The Elusive Costs of Inflation: Price Dispersion during the U.S. Great Inflation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1933-1980.
    16. James Costain & Anton Nakov, 2011. "Price Adjustments in a General Model of State‐Dependent Pricing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(2‐3), pages 385-406, March.
    17. Etienne Gagnon, 2009. "Price Setting during Low and High Inflation: Evidence from Mexico," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1221-1263.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hugh Montag & Daniel Villar, 2022. "Price-Setting During the Covid Era," Economic Working Papers 547, Bureau of Labor Statistics.
    2. Hong, Gee Hee & Klepacz, Matthew & Pasten, Ernesto & Schoenle, Raphael, 2023. "The real effects of monetary shocks: Evidence from micro pricing moments," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 1-20.
    3. Abdelraouf, Nadine & Noureldin, Diaa, 2022. "The impact of the exchange rate regime on the dispersion of the price-change distribution: Evidence from a large panel of countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    4. DongIk Kang & Andrew Usher, 2023. "Does Product Revenue Matter for Price Setting and Monetary Policy Transmission?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 297-345, January.
    5. Randal J. Verbrugge & Saeed Zaman, 2022. "Improving Inflation Forecasts Using Robust Measures," Working Papers 22-23R, Federal Reserve Bank of Cleveland, revised 30 May 2023.
    6. Luo, Shaowen & Villar, Daniel, 2023. "Propagation of shocks in an input-output economy: Evidence from disaggregated prices," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 26-46.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Isaac Baley & Andrés Blanco, 2021. "Aggregate Dynamics in Lumpy Economies," Econometrica, Econometric Society, vol. 89(3), pages 1235-1264, May.
    2. Costain, James & Nakov, Anton, 2015. "Precautionary price stickiness," Journal of Economic Dynamics and Control, Elsevier, vol. 58(C), pages 218-234.
    3. Dhyne, Emmanuel & Fuss, Catherine & Pesaran, M. Hashem & Sevestre, Patrick, 2011. "Lumpy Price Adjustments: A Microeconometric Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 529-540.
    4. Etienne Gagnon & David López-Salido & Nicolas Vincent, 2013. "Individual Price Adjustment along the Extensive Margin," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 235-281.
    5. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2013. "Small and Large Price Changes and the Propagation of Monetary Shocks," EIEF Working Papers Series 1318, Einaudi Institute for Economics and Finance (EIEF), revised Aug 2013.
    6. Luo, Shaowen & Villar, Daniel, 2021. "The price adjustment hazard function: Evidence from high inflation periods," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    7. Hong, Gee Hee & Klepacz, Matthew & Pasten, Ernesto & Schoenle, Raphael, 2023. "The real effects of monetary shocks: Evidence from micro pricing moments," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 1-20.
    8. Gasteiger, Emanuel & Grimaud, Alex, 2023. "Price setting frequency and the Phillips curve," European Economic Review, Elsevier, vol. 158(C).
    9. Maarten Dossche, 2009. "Understanding Inflation Dynamics.Where Do We Stand?," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(2), pages 209-227.
    10. Ray, Sourav & Snir, Avichai & Levy, Daniel, 2023. "Retail Pricing Format and Rigidity of Regular Prices," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-1.
    11. Guido Ascari & Timo Haber, 2019. "Sticky prices and the transmission mechanism of monetary policy: A minimal test of New Keynesian models," Economics Series Working Papers 869, University of Oxford, Department of Economics.
    12. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    13. Demery, David, 2012. "State-dependent pricing and the non-neutrality of money," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 933-944.
    14. Peter Karadi & Adam Reiff, 2019. "Menu Costs, Aggregate Fluctuations, and Large Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 111-146, July.
    15. Cosmin Ilut & Rosen Valchev & Nicolas Vincent, 2020. "Paralyzed by Fear: Rigid and Discrete Pricing Under Demand Uncertainty," Econometrica, Econometric Society, vol. 88(5), pages 1899-1938, September.
    16. Anton Nakov & James Costain, 2009. "Dynamics of the Price Distribution in a General Model of State-Dependent Pricing," 2009 Meeting Papers 611, Society for Economic Dynamics.
    17. Erwan Gautier & Ronan Le Saout, 2015. "The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(6), pages 1063-1089, September.
    18. Franz Ruch & Neil Rankin & Stan du Plessis, 2016. "Decomposing inflation using micropricelevel data South Africas pricing dynamics," Working Papers 7353, South African Reserve Bank.
    19. Bartosz Mackowiak & Frank Smets, 2008. "On implications of micro price data for macro models," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    20. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 2008 - 2015 380, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jmoncb:v:53:y:2021:i:1:p:41-72. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.