Relative Prices as Aggregate Supply Shocks with Trend Inflation

David Demery and Nigel Duck ()

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: This paper modifies the menu-cost model that Ball and Mankiw (1995) put forward to explain the correlation between the first- and higher-moments of the distribution of US price changes by allowing for non-zero trend inflation. Simulations suggest that even if trend inflation is only mildly positive - such as the 3 percent per annum experienced by the US in the last 50 years - the predictions of the Ball and Mankiw model are greatly altered. We then show that some of these predictions are rejected by annual post-WW2 US data.

Keywords: Inflation; menu-cost; relative price variance; relative price skewness; skew-normal. (search for similar items in EconPapers)
JEL-codes: E30 E31 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-01
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.bristol.ac.uk/efm/media/workingpapers/w ... pdffiles/dp05570.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:05/570

Access Statistics for this paper

More papers in Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK
Bibliographic data for series maintained by Vicky Jackson ().