Empirical Investigation of a Sufficient Statistic for Monetary Shocks

Fernando Alvarez, Andrea Ferrara, Erwan Gautier, Hervé Le Bihan and Francesco Lippi

The Review of Economic Studies, 2025, vol. 92, issue 4, 2165-2196

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 price change distribution over the frequency of price changes. We test the sufficient statistic proposition using data for a large sample of products representative of the French economy. We first extend the theory to allow for empirically relevant monetary shocks with a transitory predictable component. We then use the microdata to measure kurtosis and frequency for about 120 producer price indices industries and 220 consumer price indices categories. We use a Factor-Augmented Vector Autoregressive (FAVAR) model to measure the industries’ response to monetary shocks, under alternative identification schemes. The estimated degree of non-neutrality correlates with the kurtosis and the frequency consistently with the predictions of the theory. Several robustness checks are discussed.

Keywords: Impulse response functions; Monetary shocks; Generalized hazard function; Sticky prices; Sufficient statistic (search for similar items in EconPapers)
Date: 2025
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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)
Working Paper: Empirical Investigation of a Sufficient Statistic for Monetary Shocks (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:92:y:2025:i:4:p:2165-2196.

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