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The Real Effects of Monetary Shocks: Evidence from Micro Pricing Moments

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  • Gee Hee Hong
  • Matthew Klepacz
  • Ernesto Pasten
  • Raphael Schoenle

Abstract

Cross-sectional variation in micro data can be used to empirically evaluate sufficient statistics for the response of aggregate variables to policy shocks of interest. We demonstrate an easy-to-use approach through a detailed example. We evaluate the sufficiency of micro pricing moments for the aggregate real effects of monetary policy shocks. Our analysis shows how a widely held notion about the kurtosis of price changes, as sufficient for summarizing the selection effect, turns out not to hold empirically. On theoretical grounds, we show how a small change in assumptions - removing random menu costs - can nonetheless reconcile the predictions of the existing theoretical literature with our empirical regularities.

Suggested Citation

  • Gee Hee Hong & Matthew Klepacz & Ernesto Pasten & Raphael Schoenle, 2020. "The Real Effects of Monetary Shocks: Evidence from Micro Pricing Moments," Working Papers Central Bank of Chile 875, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:875
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    2. 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.
    3. Canales, Mario & Lopez-Martin, Bernabe, 2024. "Exchange rates, uncertainty, and price-setting: Evidence from CPI microdata," Economic Modelling, Elsevier, vol. 139(C).
    4. Henkel, Lukas, 2020. "Sectoral output effects of monetary policy: do sticky prices matter?," Working Paper Series 2473, European Central Bank.
    5. Allayioti, Anastasia & Gόrnicka, Lucyna & Holton, Sarah & Martínez Hernández, Catalina, 2024. "Monetary policy pass-through to consumer prices: evidence from granular price data," Working Paper Series 3003, European Central Bank.

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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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