This paper evaluates the informativeness of eight micro pricing moments for monetary non-neutrality. Frequency of price changes is the only robustly informative moment. The ratio of kurtosis over frequency is significant only because of frequency, and insignificant when non-pricing moments are included. Non-pricing moments are additionally informative about monetary non-neutrality, indicating potential omitted variable bias and the inability of pricing moments to serve as sufficient statistics. In contrast to existing theoretical work, this ratio has an ambiguous relationship with monetary non-neutrality in a quantitative menu cost model. We show which modeling ingredients explain this discrepancy, providing guidance on modeling choices.
“Big G” typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the US government and establish five facts. First, government spending is granular; that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation in spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact inflation, little crowding out of private expenditure exists, and the multiplier tends to be larger compared to a one-sector benchmark, aligning the model with the empirical evidence.
Realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages in the transmission of monetary policy shocks. Quantitatively, heterogeneity in price stickiness is the central driver for real effects. Input-output linkages and consumption shares alter the identity of the most important sectors to the transmission. Reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input-output linkages identifies the wrong sectors from which the real effects originate.
Realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages in the transmission of monetary policy shocks. Quantitatively, heterogeneity in price stickiness is the central driver for real effects. Input-output linkages and consumption shares alter the identity of the most important sectors to the transmission. Reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input-output linkages identifies the wrong sectors from which the real effects originate.
