IDEAS home Printed from https://ideas.repec.org/p/red/sed016/1494.html
   My bibliography  Save this paper

Price Selection, Monetary Non-neutrality, and Sticky-Price Models

Author

Listed:
  • Oleksiy Kryvtsov

    (Bank of Canada)

  • Carlos Carvalho

    (PUC-Rio)

Abstract

We propose a new decomposition of monthly inflation into components varying with the fraction of individual prices that change, and with their levels before and after the change, which we call a reset and a preset price components. We use the decomposition to learn about inflation dynamics and assess different models of price setting. To that end, we apply our decomposition to the U.K. CPI inflation, using its underlying micro price data, and to artificial micro data generated by calibrated versions of three canonical models of price setting. Empirically, we find the preset price component to be strongly negatively correlated with inflation, explaining almost half of its variance. This finding points to the existence of "selection" effects in price setting that are important for inflation dynamics. However, using model simulations, we also show that preset price component is silent on the degree of monetary non-neutrality. We are currently exploring a moment that maps one-to-one into the degree of monetary non-neutrality in the models, and which can be computed directly from micro price data.

Suggested Citation

  • Oleksiy Kryvtsov & Carlos Carvalho, 2016. "Price Selection, Monetary Non-neutrality, and Sticky-Price Models," 2016 Meeting Papers 1494, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1494
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Julio Blanco & Javier Cravino, 2018. "Price Rigidities and the Relative PPP," 2018 Meeting Papers 346, Society for Economic Dynamics.
    2. Blanco, Andrés & Cravino, Javier, 2020. "Price rigidities and the relative PPP," Journal of Monetary Economics, Elsevier, vol. 116(C), pages 104-116.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed016:1494. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.