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Menu Costs and Inflation Asymmetries - Some Micro Data Evidence

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Karadi, Peter
Reiff, Adam

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Abstract

The paper explains the observed asymmetric inflation response to value-added tax (VAT) changes in Hungary by calibrating a standard sectoral menu cost model on a new micro-level CPI data set. The model is able to reproduce important moments of the data, and finds that the asymmetry can be explained by the interaction of menu costs, (sectoral) trend inflation and forward looking firms, thereby it provides direct evidence to the argument of Ball and Mankiw (1994).

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7102.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:7102

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Related research
Keywords: Menu Cost Inflation Asymmetry Sectoral Heterogeneity Value-Added Tax

Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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  1. Patrick J. Kehoe & Virgiliu Midrigan, 2007. "Sales and the real effects of monetary policy," Working Papers 652, Federal Reserve Bank of Minneapolis. [Downloadable!]
  2. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181. [Downloadable!] (restricted)
  3. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November. [Downloadable!] (restricted)
  4. Morten O. Ravn & Martin Sola, 2004. "Asymmetric effects of monetary policy in the United States," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 41-60. [Downloadable!]
  5. Laurence Ball & N. Gregory Mankiw, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-77, November. [Downloadable!] (restricted)
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  7. Michael B. Devereux & Henry E. Siu, 2007. "State Dependent Pricing And Business Cycle Asymmetries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 281-310, 02. [Downloadable!] (restricted)
    Other versions:
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