Persistent Monetary Non-Neutrality in an Estimated Model with Menu Costs and Partially Costly Information

34 Pages Posted: 27 Mar 2016 Last revised: 8 Jul 2019

See all articles by Marco Bonomo

Marco Bonomo

Insper Institute of Education and Research

Carlos Carvalho

Asset 1 Investment Company; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

René Garcia

Université de Montréal - CIREQ - Département de sciences économiques; University of Montreal

Vivian Malta

World Bank; International Monetary Fund (IMF) - Policy Development and Review Department

Date Written: July 1, 2019

Abstract

We propose a price-setting model which helps reconcile microeconomic evidence of relatively frequent and large price changes with persistent real effects of monetary shocks. In our model, both price adjustments and the gathering of some types of information are costly, requiring the payment of a lump-sum cost. Additional relevant information flows continuously, and can be factored into pricing decisions costlessly. We estimate three versions of the model by a Simulated Method of Moments, including a special case in which all information is costly. When idiosyncratic information is free and aggregate information is costly, our estimated model is able to match individual price-setting statistics for the U.S. and, at the same time, produce persistent monetary non-neutrality.

Keywords: menu costs, information costs, infrequent information, partial information, inattentiveness, optimal price setting, state-dependent pricing, time-dependent pricing

JEL Classification: E00, E31

Suggested Citation

Bonomo, Marco and Carvalho, Carlos and Garcia, René and Malta, Vivian, Persistent Monetary Non-Neutrality in an Estimated Model with Menu Costs and Partially Costly Information (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=2755119 or http://dx.doi.org/10.2139/ssrn.2755119

Marco Bonomo

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Carlos Carvalho (Contact Author)

Asset 1 Investment Company ( email )

Avenida Juscelino Kubitschek, 1600/Conj 52
São Paulo, São Paulo
Brazil

HOME PAGE: http://www.asset1.com.br

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

René Garcia

Université de Montréal - CIREQ - Département de sciences économiques ( email )

C.P. 6128, succursale Centre-Ville
3150, rue Jean-Brillant, bureau C-6027
Montreal, Quebec H3C 3J7
Canada
514-985-4014 (Phone)

University of Montreal ( email )

United States

Vivian Malta

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

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