Distributional dynamics under smoothly state-dependent pricing

James Costain and Anton Nakov

No 1333, Working Paper Series from European Central Bank

Abstract: Starting from the assumption that firms are more likely to adjust their prices when doing so is more valuable, this paper analyzes monetary policy shocks in a DSGE model with firm-level heterogeneity. The model is calibrated to retail price microdata, and inflation responses are decomposed into “intensive”, “extensive”, and “selection” margins. Money growth and Taylor rule shocks both have nontrivial real effects, because the low state dependence implied by the data rules out the strong selection effect associated with fixed menu costs. The response to firm-specific shocks is gradual, though inappropriate econometrics might make it appear immediate. JEL Classification: E31, E52, D81

Keywords: heterogeneity; menu costs; nominal rigidity; state-dependent pricing; Taylor rule (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Note: 3308697
References: View complete reference list from CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1333.pdf (application/pdf)

Related works:
Journal Article: Distributional dynamics under smoothly state-dependent pricing (2011)
Working Paper: Distributional dynamics under smoothly state-dependent pricing (2011)
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:ecb:ecbwps:20111333

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().