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

45 Pages Posted: 27 Mar 2016 Last revised: 6 Dec 2021

See all articles by Marco Bonomo

Marco Bonomo

Insper Institute of Education and Research

Carlos Carvalho

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Kapitalo Investimentos

René Garcia

Université de Montréal ; Toulouse School of Economics

Vivian Malta

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

Rodolfo Rigato

Harvard University

Date Written: September 15, 2021

Abstract

We propose a model that reconciles microeconomic evidence of frequent and large price changes with sizable monetary non-neutrality. Firms incur separate lump-sum costs to change prices and to gather and process some information about marginal costs. Additional relevant information
is continuously available, and can be factored into pricing decisions at no cost. We estimate the model by Simulated Method of Moments, using price-setting statistics for the U.S. economy. The model with free idiosyncratic and costly aggregate information fits well both targeted and untargeted microeconomic moments and generates almost three times as much monetary non-neutrality as the Calvo model.

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 and Dinis Rigato, Rodolfo, Persistent Monetary Non-Neutrality in an Estimated Menu Cost Model with Partially Costly Information (September 15, 2021). 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)

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

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22451
Brazil

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

Kapitalo Investimentos ( email )

São Paulo
Brazil

René Garcia

Université de Montréal ( email )

C.P. 6128, succursale Centre-Ville
3150, rue Jean-Brillant, bureau C-6027
Montreal, Quebec H3C 3J7
Canada
514-7018807 (Phone)

HOME PAGE: http://https://myrenegarcia.wordpress.com

Toulouse School of Economics ( email )

Toulouse
France

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

Rodolfo Dinis Rigato

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
207
Abstract Views
1,285
rank
214,423
PlumX Metrics