Sticky prices and monetary policy shocks
Mark Bils,
Pete Klenow and
Oleksiy Kryvtsov
Quarterly Review, 2003, vol. 27, issue Win, 2-9
Abstract:
Models with sticky prices predict that monetary policy changes will affect relative prices and relative quantities in the short run because some prices are more flexible than others. In U.S. micro data, the degree of price stickiness differs dramatically across consumption categories. This study exploits that diversity to ask whether popular measures of monetary shocks (for example, innovations in the federal funds rate) have the predicted effects. The study finds that they do not. Short-run responses of relative prices have the wrong sign. And monetary policy shocks seem to have persistent effects on both relative prices and relative quantities, rather than the transitory effects one would expect from differences in price flexibility across goods. The findings reject the joint hypothesis that the sticky-price models typically employed in policy analysis capture the U.S. economy and that commonly used monetary policy shocks represent exogenous shifts.
Keywords: Prices; Monetary policy (search for similar items in EconPapers)
Date: 2003
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