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

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  • Andrés 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 non-neutrality. 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.

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  • Andrés Blanco & Corina Boar & Callum J. Jones & Virgiliu Midrigan, 2024. "Nonlinear Dynamics in Menu Cost Economies? Evidence from U.S. Data," NBER Working Papers 32748, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32748
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    References listed on IDEAS

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    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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    JEL classification:

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

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