EconPapers    
Economics at your fingertips  
 

Menu Costs, Aggregate Fluctuations, and Large Shocks

Adam Reiff and Peter Karadi

No 10138, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: How do frictions in price setting influence monetary non-neutrality? We revisit this classic question in a quantitative menu cost model with multi-product firms that face idiosyncratic shocks with unsynchronized stochastic volatility. The model matches the unconditional distribution of price changes and successfully predicts new evidence on pricing responses to large value-added tax shocks. In particular, it captures both the exploding fraction of price changes and the shape of their conditional distribution, outperforming alternative models. The model generates near money neutrality even to small nominal shocks.

Keywords: Monetary policy transmission; Price change distribution; State-dependent pricing; Value-added tax (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://cepr.org/publications/DP10138 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Menu Costs, Aggregate Fluctuations, and Large Shocks (2019) Downloads
Working Paper: Menu Costs, Aggregate Fluctuations and Large Shocks (2014) Downloads
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:cpr:ceprdp:10138

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP10138

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-23
Handle: RePEc:cpr:ceprdp:10138