Inflation Asymmetry and Menu Costs - New Micro Data Evidence
evidence on the asymmetry of inflation response to aggregate shocks. We show that even though a standard menu cost model like that of Golosov and Lucas (2007) underestimates the asymmetry, a sectoral menu cost model with multi-product firms and trend-inflation can quantitatively account for the inflation asymmetry observed in the data, thereby it provides direct evidence to the argument of Ball and Mankiw (1994). The model predicts that the effect of a positive monetary policy shock can have almost twice as large inflation effect as a negative shock.
|Date of creation:||2009|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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- Etienne Gagnon, 2006. "Price Setting during Low and High Inflation: Evidence from Mexico," 2006 Meeting Papers 300, Society for Economic Dynamics.
- Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers 896, Board of Governors of the Federal Reserve System (U.S.).
- 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.
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