Reset Price Inflation and the Impact of Monetary Policy Shocks

Mark Joseph Bils, Pete Klenow and Benjamin Andrew Malin ()

No 14787, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A standard state-dependent pricing model generates little monetary non-neutrality. Two ways of generating more meaningful real effects are time-dependent pricing and strategic complementarities. These mechanisms have telltale implications for the persistence and volatility of "reset price inflation." Reset price inflation is the rate of change of all desired prices (including for goods that have not changed price in the current period). Using the micro data underpinning the CPI, we construct an empirical measure of reset price inflation. We find that time-dependent models imply unrealistically high persistence and stability of reset price inflation. This discrepancy is exacerbated by adding strategic complementarities, even under state-dependent pricing. A state-dependent model with no strategic complementarities aligns most closely with the data.

JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2009-03
Note: EFG ME

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Working Paper: Reset price inflation and the impact of monetary policy shocks (2009)
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