Inflation Asymmetry and Menu Costs - New Micro Data Evidence

Adam Reiff and Peter Karadi
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Peter Karadi: New York University

No 576, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: evidence on the asymmetry of inflation response to aggregate shocks. We show that even though a standard menu cost model like that of Golosov and Lucas (2007) underestimates the asymmetry, a sectoral menu cost model with multi-product firms and trend-inflation can quantitatively account for the inflation asymmetry observed in the data, thereby it provides direct evidence to the argument of Ball and Mankiw (1994). The model predicts that the effect of a positive monetary policy shock can have almost twice as large inflation effect as a negative shock.

Date: 2009
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