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 School of Economics Research Support Team ().