Measuring Price Selection in Microdata: It's Not There
50 Pages Posted: 15 Jun 2021
Date Written: June, 2021
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: Suggested Citation