The Real Effects of Monetary Shocks: Evidence from Micro Pricing Moments
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.
Keywords: Price-setting, menu cost, micro moments, sufficient statistics
JEL codes: E13, E31, E32.
Suggested citation: Hong, Gee Hee, Matthew Klepacz, Ernesto Pasten, and Raphael Schoenle. 2021. “The Real Effects of Monetary Shocks: Evidence from Micro Pricing Moments.” Federal Reserve Bank of Cleveland, Working Paper No. 21-17. https://doi.org/10.26509/frbc-wp-202117.