Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models

For a given frequency of price changes, the real e ects of a monetary shock are smaller ifadjusting rms are disproportionately likely to have last set their prices before the shock. Thistype of selection for the age of prices provides a complete characterization of the nature ofpricing frictions in time-dependent sticky-price models. In particular: 1) The Taylor (1979)model exhibits maximal selection for older prices, whereas the Calvo (1983) model exhibitsno selection, so that real e ects are smaller in the former than in the latter; 2) Selection isweaker and real e ects of monetary shocks are larger if the hazard function of price adjustmentis less strongly increasing; 3) Selection is weaker and real e ects are larger if there is sectoralheterogeneity in price stickiness; 4) Selection is weaker and real e ects are larger if the durationsof price spells are more variable.