Nominal rigidities, relative prices and skewness
AbstractThe menu costs model developed by Ball and Mankiw (BM)(1994,1995) predicts that inflation is positively related to the skewness of price changes distribution. We test this prediction in different inflationary contexts: Spain (1975-2002) and Argentina (1960-1989). We find a positive inflation-skewness relationship in both countries at low inflation, even though the mean annual inflation rates were very different: 2,2% for Spain and 23% for Argentina. Therefore, the threshold of low inflation under which the menu costs model is suitable is determined endogenously, and it depends on the inflationary experience of each economy. In the higher inflation periods skewness is not significant. Finally, our results suggest that the menu-costs model is not suitable beyond certain threshold of inflation.
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Bibliographic InfoPaper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2005/17.
Length: 27 pages
Date of creation: 2005
Date of revision:
menu costs; skewness; relative prices; inflation regimes;
Find related papers by JEL classification:
- 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-2005-09-29 (All new papers)
- NEP-CBA-2005-09-29 (Central Banking)
- NEP-MAC-2005-09-29 (Macroeconomics)
- NEP-MON-2005-09-29 (Monetary Economics)
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