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The relative price effects of monetary shocks

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  • Balke, Nathan S.
  • Wynne, Mark A.

Abstract

We document the response of the individual components of the Producer Price Index (PPI) to commonly used measures of monetary shocks, and show that these responses are at variance with many widely-used “macro” models of monetary non-neutrality. Monetary shocks are shown to have large relative price effects, resulting in an increase in the dispersion of the cross-section distribution of prices. Furthermore, in response to a contractionary (expansionary) monetary shock, a substantial number of prices tend to rise (fall). Most of the existing models of monetary nonneutrality are not capable of replicating these types of relative price responses.
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  • Balke, Nathan S. & Wynne, Mark A., 2007. "The relative price effects of monetary shocks," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 19-36, March.
  • Handle: RePEc:eee:jmacro:v:29:y:2007:i:1:p:19-36
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    Cited by:

    1. Enders, Zeno, 2012. "Heterogeneous consumers, segmented asset markets, and the effects of monetary policy," Working Papers 0537, University of Heidelberg, Department of Economics.
    2. repec:mbr:jmonec:v:6:y:2012:i:4:p:27-60 is not listed on IDEAS
    3. Abdul Karim, Zulkefly & Zaidi, Mohd Azlan Shah & W.N.W, Azman-Saini, 2011. "Relative price effects of monetary policy shock in Malaysia: a svar study," MPRA Paper 38768, University Library of Munich, Germany.
    4. Juliane Scharff & Sven Schreiber, 2012. "Evidence on the effects of inflation on price dispersion under indexation," Empirical Economics, Springer, vol. 43(1), pages 291-311, August.
    5. Balke, Nathan S. & Wynne, Mark A., 2007. "The relative price effects of monetary shocks," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 19-36, March.
    6. Mario Marcel & Carlos Medel & Jessica Mena, 2017. "Determinantes de la Inflación de Servicios en Chile," Working Papers Central Bank of Chile 803, Central Bank of Chile.
    7. repec:fgv:epgrbe:v:65:n:1:a:4 is not listed on IDEAS
    8. repec:sbe:breart:v:38:y:2018:i:1:a:43674 is not listed on IDEAS
    9. Gwin, Carl & VanHoose, David D., 2012. "Durable goods and sticky prices: Industry-level evidence," Economics Letters, Elsevier, vol. 116(3), pages 460-464.
    10. Davis, George K. & Hineline, David & Kanago, Bryce E., 2011. "Inflation and real sectoral output shares: Dynamic panel model evidence from seven OECD countries," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 607-619.
    11. Jean Boivin & Marc P. Giannoni & Ilian Mihov, 2009. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," American Economic Review, American Economic Association, vol. 99(1), pages 350-384, March.
    12. Zeno Enders, 2017. "Heterogeneous Consumers, Segmented Asset Markets, and the Real Effects of Monetary Policy," CESifo Working Paper Series 6467, CESifo Group Munich.
    13. Givens, Gregory & Reed, Robert, 2015. "Monetary Policy and Investment Dynamics: Evidence from Disaggregate Data," MPRA Paper 61495, University Library of Munich, Germany.
    14. Vipin P. Veetil & Lawrence H. White, 2017. "Towards a New Austrian Macroeconomics," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(1), pages 19-38, March.
    15. Garcia, Marcio Gomes Pinto & Guillen, Diogo Abry, 2011. "Dispersão na fixação de preços no Brasil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 65(1), March.
    16. Zeno Enders, 2010. "Heterogeneous consumers, segmented asset markets,and the effects of monetary policy," Bonn Econ Discussion Papers bgse08_2010, University of Bonn, Germany.
    17. Baumeister, Christiane & Liu, Philip & Mumtaz, Haroon, 2013. "Changes in the effects of monetary policy on disaggregate price dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 543-560.

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