Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model

Erwan Gautier and Hervé Le Bihan

No 248, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Relying on a menu cost model augmented with a time{dependent (Calvo) component, we investigate the structural sources of cross-sectoral heterogeneity in patterns of price setting. We use a large microdataset of French consumer prices to estimate the model at the product-level for 227 products. The Calvo component is found to be large in most sectors. Heterogeneity in structural parameters is found to be substantial. These two features combined result in a sizable amplification of the degree of monetary policy non-neutrality, as compared to a single sector pure menu-cost model estimated with aggregate moments.

Date: 2018
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Working Paper: Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model (2018)
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