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Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model

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  • Erwan Gautier, Hervé Le Bihan

Abstract

Relying on a menu-cost model augmented with a time-dependent (Calvo) component, we investigate the structural sources of cross-sectoral heterogeneity in patterns of price setting. We use a large micro dataset of French consumer prices to estimate the model at the product level for 227 products. The Calvo component is found to be large in most sectors. Heterogeneity in structural parameters is also substantial. The combination of these two features leads to much larger real effects of monetary policy. The effect of monetary shock on output is more than 4 times larger than the one derived from a standard single-sector menu-cost model estimated using average moments.

Suggested Citation

  • Erwan Gautier, Hervé Le Bihan, 2018. "Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model," Working papers 682, Banque de France.
    • Handle: RePEc:bfr:banfra:682
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    References listed on IDEAS

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    Cited by:

    1. Mark N. Harris & Hervé Le Bihan & Patrick Sevestre, 2020. "Identifying Price Reviews by Firms: An Econometric Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 293-322, March.
    2. Beck, Günter W. & Lein, Sarah M., 2020. "Price elasticities and demand-side real rigidities in micro data and in macro models," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 200-212.
    3. Apaitan, Tosapol & Disyatat, Piti & Manopimoke, Pym, 2020. "Thai inflation dynamics: A view from disaggregated price data," Economic Modelling, Elsevier, vol. 84(C), pages 117-134.
    4. Carvalho, Carlos & Kryvtsov, Oleksiy, 2021. "Price selection," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 56-75.
    5. Sungki Hong, 2019. "Customer Capital, Markup Cyclicality, and Amplification," 2019 Meeting Papers 959, Society for Economic Dynamics.

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    More about this item

    Keywords

    Price rigidity; menu cost; (S; s) models; adjustment cost; heterogeneity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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