Shocks versus Menu Costs: Patterns of Price Rigidity in an Estimated Multisector Menu-Cost Model | Zendy

Erwan Gautier | Zendy; Hervé Le Bihan | Zendy

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Shocks versus Menu Costs: Patterns of Price Rigidity in an Estimated Multisector Menu-Cost Model

Author(s) -

Erwan Gautier,

Hervé Le Bihan

Publication year - 2020

Publication title -

the review of economics and statistics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 8.999

H-Index - 165

eISSN - 1530-9142

pISSN - 0034-6535

DOI - 10.1162/rest_a_00968

Subject(s) - microdata (statistics) , economics , econometrics , rigidity (electromagnetism) , shock (circulatory) , price setting , microeconomics , medicine , population , demography , structural engineering , sociology , engineering , census

Sectoral heterogeneity matters for monetary policy. Using CPI microdata, we estimate for 227 products a time–varying menu-cost model to investigate the quantitative relevance of this heterogeneity. We find a substantial degree of cross-sectoral heterogeneity in all structural parameters. Heterogeneity in the Calvo component of the pricing friction is however the main source of heterogeneity in price rigidity. Cross-sectoral heterogeneity amplifies the output effect of a monetary shock by a factor of about 2.5, compared to a single-sector model estimated with mean moments. Heterogeneity in the Calvo parameter plays a key role in this amplification.

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