Relative Prices as Aggregate Supply Shocks with Trend Inflation
AbstractThis paper modifies the menu-cost model that Ball and Mankiw (1995) put forward to explain the correlation between the first- and higher-moments of the distribution of US price changes by allowing for non-zero trend inflation. Simulations suggest that even if trend inflation is only mildly positive - such as the 3 percent per annum experienced by the US in the last 50 years - the predictions of the Ball and Mankiw model are greatly altered. We then show that some of these predictions are rejected by annual post-WW2 US data.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 05/570.
Length: 22 pages
Date of creation: Jan 2005
Date of revision:
Inflation; menu-cost; relative price variance; relative price skewness; skew-normal.;
Find related papers by JEL classification:
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-14 (All new papers)
- NEP-CBA-2005-05-14 (Central Banking)
- NEP-MAC-2005-05-14 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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NBER Working Papers
5793, National Bureau of Economic Research, Inc.
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