Relative Prices as Aggregate Supply Shocks with Trend Inflation

David Demery and Nigel W. Duck

Journal of Money, Credit and Banking, 2008, vol. 40, issue 2-3, 389-408

Abstract: Ball and Mankiw (1995) use a static menu-cost model to explain the historical behavior of the first and higher moments of commodity price changes in U.S. producer prices. We show that when appropriately modified for a world of positive trend inflation and forward-looking behavior by firms, the menu-cost model predicts a much weaker (possibly zero) correlation between the mean and the skewness of price changes than that found in the data. Copyright (c)2008 The Ohio State University.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:40:y:2008:i:2-3:p:389-408

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