Empirical Investigation of a Sufficient Statistic for Monetary Shocks

Fernando Alvarez, Andrea Ferrara, Erwan Gautier, Hervé Le Bihan and Francesco Lippi
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Fernando Alvarez: University of Chicago and NBER
Andrea Ferrara: Northwestern University

No 2109, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: In a broad class of sticky price models the non-neutrality of nominal shocks is captured by a simple sufficient statistic: the ratio of the kurtosis of the size-distribution of price changes over the frequency of price changes. We test this theoretical prediction using data for a large number of firms representative of the French economy. We use the micro data to measure the cross sectional moments, including kurtosis and frequency, for about 120 PPI industries and 220 CPI categories. We use a Factor Augmented VAR to measure the sectoral responses to a monetary shock, as summarized by the cumulative impulse response of sectoral prices (CIRP), under three alternative identification schemes. The estimated CIRP correlates with the kurtosis and the frequency consistently with the prediction of the theory (equal coefficients with opposite signs). The analysis also shows that other moments not suggested by the theory, such as the mean, standard deviation and skewness of the size-distribution of price changes, are not correlated with the CIRP. Several robustness checks of these findings are analyzed.

Pages: 83 pages
Date: 2021, Revised 2021-05
New Economics Papers: this item is included in nep-cwa and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Empirical Investigation of a Sufficient Statistic for Monetary Shocks (2021)
Working Paper: Empirical Investigation of a Sufficient Statistic for Monetary Shocks (2021)
Working Paper: Empirical Investigation of a Sufficient Statistic for Monetary Shocks (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:2109

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