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Price elasticities and demand-side real rigidities in micro data and in macro models

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  • Lein, Sarah
  • Beck, Günter

Abstract

High degrees of demand-side real rigidities are able to generate the large monetary non-neutrality found in aggregate data. This paper provides micro-based evidence on the key parameters governing this rigidity using European homescan data. We find strong evidence for demand-side real rigidity, which is, however, significantly lower than that normally assumed in macro models. In a menu-cost model calibrated to our estimates, we show that our estimates are associated with reasonable values for production-side parameters, but they are not able to generate the degree of monetary non-neutrality observed in macro data.

Suggested Citation

  • Lein, Sarah & Beck, Günter, 2020. "Price elasticities and demand-side real rigidities in micro data and in macro models," CEPR Discussion Papers 14303, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14303
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    3. Takushi Kurozumi & Willem Van Zandweghe, 2023. "A Theory of Intrinsic Inflation Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(8), pages 1961-2000, December.
    4. Yasuo Hirose & Takushi Kurozumi & Wille Van Zandweghe, 2023. "Inflation Gap Persistence, Indeterminacy, and Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 867-887, December.
    5. David Staines, 2023. "Stochastic Equilibrium the Lucas Critique and Keynesian Economics," Papers 2312.16214, arXiv.org.
    6. Lippi, Francesco & Alvarez, Fernando & Ferrara, Andrea & Gautier, Erwan & Le Bihan, Hervé, 2021. "Empirical Investigation of a Sufficient Statistic for Monetary Shocks," CEPR Discussion Papers 16626, C.E.P.R. Discussion Papers.
    7. Rahel Braun & Sarah M. Lein, 2021. "Sources of Bias in Inflation Rates and Implications for Inflation Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(6), pages 1553-1572, September.
    8. Céline Bonnet & Zohra Bouamra-Mechemache & Hugo Molina, 2023. "The Buyer Power Effect of Retail Mergers: An Empirical Model of Bargaining with Equilibrium of Fear," Post-Print hal-03375907, HAL.
    9. Beck, Günter W. & Carstensen, Kai & Menz, Jan-Oliver & Schnorrenberger, Richard & Wieland, Elisabeth, 2023. "Nowcasting consumer price inflation using high-frequency scanner data: Evidence from Germany," Discussion Papers 34/2023, Deutsche Bundesbank.
    10. Nagengast, Arne J. & Bursian, Dirk & Menz, Jan-Oliver, 2021. "Dynamic pricing and exchange rate pass-through: Evidence from transaction-level data," European Economic Review, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    Demand curve; Price elasticity; Super-elasticity; Price setting; Real rigidities; Monetary non-neutrality;
    All these keywords.

    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
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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