Measuring Price Selection in Microdata: It's Not There

50 Pages Posted: 15 Jun 2021

See all articles by Peter Karadi

Peter Karadi

European Central Bank (ECB)

Raphael Schoenle

Brandeis University

Jesse Wursten

KU Leuven, Faculty of Business and Economics (FEB), Students; University of California, Berkeley

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Date Written: June, 2021

Abstract

We use microdata to estimate the strength of price selection - a key metric for the effect of monetary policy on the real economy. We propose a product-level proxy for mispricing and assess whether products with larger mispricing respond with a higher probability to identified monetary and credit shocks. We find that they do not, suggesting selection is absent. Instead, we detect state-dependent adjustment on the gross extensive margin. Our results are broadly consistent with second-generation state-dependent pricing models and sizable effects of monetary policy on the real economy.

JEL Classification: E31, E32, E52

Suggested Citation

Karadi, Peter and Schoenle, Raphael and Wursten, Jesse, Measuring Price Selection in Microdata: It's Not There (June, 2021). ECB Working Paper No. 2021/2566, Available at SSRN: https://ssrn.com/abstract=3867034

Peter Karadi (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Raphael Schoenle

Brandeis University ( email )

Waltham, MA 02454
United States

Jesse Wursten

KU Leuven, Faculty of Business and Economics (FEB), Students ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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