Reset Price Inflation and the Impact of Monetary Policy Shocks

Mark Bils, Pete Klenow and Benjamin Malin

No 08-041, Discussion Papers from Stanford Institute for Economic Policy Research

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.

Keywords: time-dependent pricing; strategic complementarities; pricing model; reset price inflation (search for similar items in EconPapers)
JEL-codes: D49 (search for similar items in EconPapers)
Date: 2009-02
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: Reset Price Inflation and the Impact of Monetary Policy Shocks (2012)
Working Paper: Reset Price Inflation and the Impact of Monetary Policy Shocks (2010)
Working Paper: Reset price inflation and the impact of monetary policy shocks (2009)
Working Paper: Reset Price Inflation and the Impact of Monetary Policy Shocks (2009)
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