Small and Large Price Changes and the Propagation of Monetary Shocks

Fernando Alvarez, Hervé Le Bihan and Francesco Lippi

No 20155, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E3 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-mac and nep-mon
Note: EFG ME
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Citations: View citations in EconPapers (12)

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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)
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