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Nonlinear Dynamics in Menu Cost Economies? Evidence from U.S. Data

Author

Listed:
  • Andres Blanco
  • Corina Boar
  • Callum J. Jones
  • Virgiliu Midrigan

Abstract

We show that standard menu cost models cannot simultaneously reproduce the dispersion in the size of micro-price changes and the extent to which the fraction of price changes increases with inflation in the U.S. time-series. Though the Golosov and Lucas (2007) model generates fluctuations in the fraction of price changes, it predicts too little dispersion in the size of price changes and therefore little monetary nonneutrality. In contrast, versions of the model that reproduce the dispersion in the size of price changes and generate stronger monetary non-neutrality predict a nearly constant fraction of price changes.

Suggested Citation

  • Andres Blanco & Corina Boar & Callum J. Jones & Virgiliu Midrigan, 2024. "Nonlinear Dynamics in Menu Cost Economies? Evidence from U.S. Data," Finance and Economics Discussion Series 2024-076, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2024-76
    DOI: 10.17016/FEDS.2024.076
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    References listed on IDEAS

    as
    1. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2016. "The Real Effects of Monetary Shocks in Sticky Price Models: A Sufficient Statistic Approach," American Economic Review, American Economic Association, vol. 106(10), pages 2817-2851, October.
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    More about this item

    Keywords

    Menu costs; Inflation; Fraction of price changes;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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