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Monetary Policy, Price Setting, and Credit Constraints

Almut Balleer () and Peter Zorn ()

No 14163, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We estimate the effects of monetary policy on price-setting behavior in administrative micro data underlying the German producer price index. We find a strong degree of monetary non-neutrality. After expansionary monetary policy, the mass of additional price adjustments is economically small and the average absolute size across all price changes falls. The aggregate price level hardly adjusts, and monetary policy has real effects. These estimates rule out quantitative structural models that generate small and transient effects of monetary policy through selection on large price adjustments. We provide evidence that monetary policy propagates primarily through production units with weak financial positions.

Keywords: credit constraints; extensive margin; intensive margin; local projections; Menu cost; monetary policy; Price Setting (search for similar items in EconPapers)
JEL-codes: E30 E31 E32 E44 E52 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-mac and nep-mon
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