Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153767
Authors: 
Costain, James
Nakov, Anton
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper 1333
Abstract: 
Starting from the assumption that firms are more likely to adjust their prices when doing so is more valuable, this paper analyzes monetary policy shocks in a DSGE model with firm-level heterogeneity. The model is calibrated to retail price microdata, and inflation responses are decomposed into “intensive”, “extensive”, and “selection” margins. Money growth and Taylor rule shocks both have nontrivial real effects, because the low state dependence implied by the data rules out the strong selection effect associated with fixed menu costs. The response to firm-specific shocks is gradual, though inappropriate econometrics might make it appear immediate.
Subjects: 
heterogeneity
menu costs
nominal rigidity
state-dependent pricing
Taylor rule
JEL: 
E31
E52
D81
Document Type: 
Working Paper

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