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Quality, price stickiness, and monetary policy

Seongeun Kim

Journal of Macroeconomics, 2019, vol. 61, issue C, -

Abstract: The low-price, low-quality brands change prices more frequently than the high-price, high-quality brands within the same product category. The greater price rigidity for high-quality brands leads to asymmetric effects of monetary policy on the rich and the poor. For instance, monetary policy shocks have larger real effects on high-income consumers who purchase more high-quality brands. This means that the rich benefit more from expansionary monetary shocks but suffer more from contractionary shocks than the poor. I build a menu-cost model with vertically differentiated products. The model predicts that monetary policy shocks have an approximately four times larger impact on the consumption of high-quality brands.

Keywords: Price stickiness; Quality; Vertical differentiation; Income; Monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:jmacro:v:61:y:2019:i:c:4