Small and large price changes and the propagation of monetary shocks

F. Alvarez, Hervé Le Bihan and Francesco Lippi

Working papers from Banque de France

Abstract: We document the presence of both small and large price changes in individual price records from the CPI in France and the US. After correcting for measurement error and cross-section heterogeneity, the size-distribution of price changes has a positive excess kurtosis. We propose an analytical menu cost model that encompasses several classic models, as Taylor (1980), Calvo (1983), Reis (2006), Golosov and Lucas (2007) and accounts for observed cross-sectional patterns. We show that the ratio of kurtosis to the frequency of price changes is a sufficient statistics for the real effects of monetary policy in a large class of models.

Keywords: price setting; micro evidence; size-distribution of price changes; kurtosis of price changes; menu-cost; Calvo pricing rule; output response to monetary shocks. (search for similar items in EconPapers)
JEL-codes: E3 E5 (search for similar items in EconPapers)
Pages: 104 pages
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... g-paper_492_2014.pdf (application/pdf)

Related works:
Working Paper: Small and Large Price Changes and the Propagation of Monetary Shocks (2014)
Working Paper: Small and large price changes and the propagation of monetary shocks (2013)
Working Paper: Small and Large Price Changes and the Propagation of Monetary Shocks (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:492

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().