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Relative Prices as Aggregate Supply Shocks with Trend Inflation
Author(s) -
DEMERY DAVID,
DUCK NIGEL W.
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00118.x
Subject(s) - economics , skewness , inflation (cosmology) , aggregate supply , econometrics , commodity , aggregate (composite) , relative price , monetary economics , aggregate data , aggregate demand , monetary policy , statistics , mathematics , physics , materials science , composite material , theoretical physics , market economy
Ball and Mankiw (1995) use a static menu‐cost model to explain the historical behavior of the first and higher moments of commodity price changes in U.S. producer prices. We show that when appropriately modified for a world of positive trend inflation and forward‐looking behavior by firms, the menu‐cost model predicts a much weaker (possibly zero) correlation between the mean and the skewness of price changes than that found in the data.