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Persistent Monetary Non-neutrality in an Estimated Model with Menu Costs and Partially Costly Information

Author

Listed:
  • Vivian Malta

    (BTG Pactual)

  • Rene Garcia

    (EDHEC Business School)

  • Carlos Carvalho

    (PUC-Rio)

  • Marco Bonomo

    (Insper Institute of Education and Research)

Abstract

We propose a price-setting model which helps to reconcile micro evidence of relatively frequent price adjustments with macroeconomic persistent effects of aggregate shocks. In our model, both price adjustments and the gathering of some types of information are costly, requiring the payment of a lump-sum cost. Additional relevant information flows continuously, and can be factored into pricing decisions costlessly. We estimate three versions of the model by a Simulated Method of Moments, including a special case in which all information is costly. When idiosyncratic information is free and aggregate information is costly, our estimated model is able to match individual price-setting statistics for the U.S. and, at the same time, produce persistent monetary non-neutrality.

Suggested Citation

  • Vivian Malta & Rene Garcia & Carlos Carvalho & Marco Bonomo, 2015. "Persistent Monetary Non-neutrality in an Estimated Model with Menu Costs and Partially Costly Information," 2015 Meeting Papers 1339, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:1339
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    References listed on IDEAS

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