The relative price effects of monetary shocks

Nathan Balke and Mark Wynne

No 306, Working Papers from Federal Reserve Bank of Dallas

Abstract: We document the response of the individual components of the Producer Price Index (PPI) to commonly used measures of monetary shocks, and show that these responses are at variance with many widely-used ?macro? models of monetary non-neutrality. Monetary shocks are shown to have large relative price effects, resulting in an increase in the dispersion of the cross-section distribution of prices. Furthermore, in response to a contractionary (expansionary) monetary shock, a substantial number of prices tend to rise (fall). Most of the existing models of monetary nonneutrality are not capable of replicating these types of relative price responses.

Pages: 39 pages
Date: 2003
New Economics Papers: this item is included in nep-mon
Note: Published as: Balke, Nathan S. and Mark A. Wynne (2007), "The Relative Price Effects of Monetary Shocks," Journal of Macroeconomics 29 (1): 19-36.
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Journal Article: The relative price effects of monetary shocks (2007)
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