Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model
74 Pages Posted: 25 May 2018
Date Written: May 2018
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 micro dataset 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 also substantial. The combination of these two features leads to much larger real effects of monetary policy. The effect of monetary shock on output is more than 4 times larger than the one derived from a standard single-sector menu-cost model estimated using average moments.
Keywords: Price rigidity, menu cost, (S,s) models, adjustment cost, heterogeneity
JEL Classification: E31, D43, L11
Suggested Citation: Suggested Citation