Investigating nonneutrality in a state-dependent pricing model with firm-level productivity shocks. (English) Zbl 1444.91094
Summary: In a model with fixed cost of price adjustment and idiosyncratic shocks, two parameterizations match a large set of microeconomic facts, yet display different degrees of nonneutrality. Although there is substantial nonneutrality in both cases, the model does not behave like a time-dependent model, as changes in the distribution of firms account for roughly a third of the short-run response of the price level to a monetary shock. We use the model to examine how aggregating firm behavior can generate flat hazards; we also find that a recently developed steady-state statistic is an imperfect guide to characterizing nonneutrality.
MSC:
| 91B24 | Microeconomic theory (price theory and economic markets) |
| 91B64 | Macroeconomic theory (monetary models, models of taxation) |
References:
| [1] | Alvarez, F. E., and F.Lippi, “Price Setting with Menu Costs for Multiproduct Firms,” Econometrica82 (2013), 89-135. · Zbl 1294.91139 |
| [2] | Alvarez, F. E., H.Le Bihan, and F.Lippi, “The Real Effects of Monetary Shocks in Sticky Price Models: A Sufficient Statistic Approach,” American Economic Review106 (2016), 2817-51. |
| [3] | Boivin, J., M. P.Giannoni, and I.Mihov, “Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data,” American Economic Review99 (2009), 350-84. |
| [4] | Burstein, A., and C.Hellwig, “Prices and Market Shares in a Menu Cost Model,” NBER Working Paper 13455, September 2007. |
| [5] | Caballero, R. J., and E. M. R. A.Engel, “Price Stickiness in SS Models: New Interpretations of Old Results,” Journal of Monetary Economics54 (2007), 100-121. |
| [6] | Caplin, A. S., and D. F.Spulber, “Menu Costs and the Neutrality of Money,” Quarterly Journal of Economics102 (1987), 703-726. |
| [7] | Carvalho, C., “Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks,” The B.E. Journal of Macroeconomics6 (2006), 1-58. |
| [8] | Costain, J., and A.Nakov, “Distributional Dynamics under Smoothly State-Dependent Pricing,” Journal of Monetary Economics58 (2011a), 646-65. |
| [9] | Costain, J., and A.Nakov, “Price Adjustment in a General Model of State‐Dependent Pricing,” Journal of Money, Credit and Banking43 (2011b), 385-406. |
| [10] | Dotsey, M., R. G.King, and A. L.Wolman, “State‐Dependent Pricing and the General Equilibrium Dynamics of Money and Output,” Quarterly Journal of Economics114 (1999), 655-90. · Zbl 0933.91005 |
| [11] | Dotsey, M., and R. G.King, “Implications of State‐Dependent Pricing for Dynamic Macroeconomic Models,” Journal of Monetary Economics52 (2005), 213-42. |
| [12] | Dotsey, M., and R. G.King, “Production, Pricing, and Persistence,” Journal of European Economic Association4 (2006), 893-928. |
| [13] | Eichenbaum, M., N.Jaimovich, and S.Rebelo, “Reference Prices, Costs, and Nominal Rigidities,” American Economic Review101 (2011), 234-62. |
| [14] | Foster, L., J.Haltiwanger, and C. J.Krizan, “Market Selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990”s,” Review of Economics and Statistics88 (2006), 748-58. |
| [15] | Foster, L., J.Haltiwanger, and C.Syverson, “Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability,” American Economic Review98 (2008), 394-425. |
| [16] | Gertler, M., and J.Leahy, “A Phillips Curve with an SS Foundation,” Journal of Political Economy116 (2008), 533-72. |
| [17] | Goffe, W. L., G. D.Ferrier, and J.Rogers, “Global Optimization of Statistical Functions with Simulated Annealing,” Journal of Econometrics60 (1994), 65-99. · Zbl 0789.62095 |
| [18] | Goffe, W. L., G. D.Ferrier, and J.Rogers, “Simulated Annealing: An Initial Application in Econometrics,” Computer Science in Economics & Management5 (1992), 133-46. · Zbl 0850.62871 |
| [19] | Golosov, M., and R. E.Lucas, “Menu Costs and Phillips Curves,” Journal of Political Economy115 (2007), 171-99. |
| [20] | Guimaraes, B., and K.Sheedy, “Sales and Monetary Policy,” American Economic Review101 (2011), 844-76. |
| [21] | Hong, G. H., M.Klepacz, E.Pasten, and R.Schoenle, “From Micro to Macro: A New Methodology to Discriminate Among Models,” Manuscript, Brandeis University, 2019. |
| [22] | Ikeda, D., and S.Nishioka, “Price Setting Behavior and Hazard Functions: Evidence from Japanese CPI Micro Data,” Bank of Japan Working Paper No. 07-E‐19, August 2007. |
| [23] | John, A. A., and A. L.Wolman, “Steady‐State Equilibrium with State‐Dependent Pricing,” Journal of Monetary Economics55 (2008), 383-405. |
| [24] | Karadi, P., and A.Reiff, “Menu Costs, Aggregate Fluctuations, and Large Shocks,” American Economic Journal: Macroeconomics11 (2019), 111-46. |
| [25] | Kehoe, P. J., and V.Midrigan, “Prices Are Sticky After All,” Journal of Monetary Economics75 (2015), 35-53. |
| [26] | Klenow, P. J., and O.Kryvtsov, “State‐Dependent or Time‐Dependent Pricing: Does It Matter for Recent U.S. Inflation?” Quarterly Journal of Economics123 (2008), 863-904. |
| [27] | Klenow, P. J., and B. A.Malin, “Microeconomic Evidence on Price‐Setting,” in B.M.Friedman (ed.) and M.Woodford (ed.), eds., Handbook of Monetary Economics, Volume 3A (San Diego: North‐Holland, 2011), 231-84. |
| [28] | Klenow, P. J., and J. L.Willis, “Real Rigidities and Nominal Price Changes,” Economica83 (2016), 443-72. |
| [29] | Kryvtsov, O., and N.Vincent, “On the Importance of Sales for Aggregate Price Flexibility,” Bank of Canada Staff Working Paper 2014-15, October 2014. |
| [30] | Luo, S., and D.Villar, “The Skewness of the Price Change Distribution: A New Touchstone for Sticky Price Models,” Finance and Economics Discussion Series 2017‐028, Washington: Board of Governors of the Federal Reserve System, 2017. |
| [31] | Mackowiak, B., E.Moench, and M.Wiederholt, “Sectoral Price Data and Models of Price Setting,” Journal of Monetary Economics56 (2009), 78-99. |
| [32] | Matějka, F. “Rigid Pricing and Rationally Inattentive Consumer,” Journal of Economic Theory158 (2015), 656-78. · Zbl 1330.91082 |
| [33] | Matějka, F., “Rationally Inattentive Seller: Sales and Discrete Pricing,” Review of Economic Studies83 (2016), 1125-55. · Zbl 1405.91209 |
| [34] | Midrigan, V., “Menu Costs, Multi‐Product Firms, and Aggregate Fluctuations,” Econometrica79 (2011), 1139-80. · Zbl 1259.91067 |
| [35] | Nakamura, E., and J.Steinsson, “Five Facts About Prices: A Reevaluation of Menu Cost Models,” Quarterly Journal of Economics123 (2008), 1415-64. |
| [36] | Nakamura, E., and J.Steinsson, “Monetary Non‐Neutrality in a Multisector Menu Cost Model,” Quarterly Journal of Economics125 (2010), 961-1013. · Zbl 1197.91161 |
| [37] | Stevens, L., “Coarse Pricing Policies,” Review of Economic Studies, forthcoming (2019). https://doi.org/10.1093/restud/rdz036. · Zbl 1483.91089 · doi:10.1093/restud/rdz036 |
| [38] | Syverson, C., “Product Substitutability and Productivity Dispersion,” Review of Economics and Statistics86 (2004), 534-50. |
| [39] | Tauchen, G., “Finite State Markov‐Chain Approximations to Univariate and Vector Autoregressions” Economics Letters20 (1986), 177-81. |
| [40] | Vavra, J., “Inflation Dynamics and Time‐Varying Volatility: New Evidence and an S,S Interpretation,” Quarterly Journal of Economics129 (2014), 215-58. · Zbl 1400.91360 |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
