Price Rigidity and the Origins of Aggregate Fluctuations

Pastén, Ernesto; Schoenle, Raphael; Weber, Michael

doi:10.3386/w23750

Cited by 24 publications

(15 citation statements)

References 24 publications

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“…regular or occasional, which supported the economic theories, i.e. implicit price contract theory (Pasten, Schoenle & Weber, 2020).…”

Section: Price-setting (Frequency Of Price Change)supporting

confidence: 54%

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Determinants of Price Rigidity and Flexibility: Some Survey Evidence for the Pakistan.

Iqbal¹,

Amin²,

Alam³

2020

IRMBR

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The objective of the study is to estimate the determinants of price stickiness or flexibility. Data is collected through structured questionnaire from 342 firms, which are selected through stratified random sampling technique from the Industrial Estate of Khyber Pakhtunkhwa. To estimate the determinants of price flexibility/rigidity, models are estimated through ordinary least squares technique and binary logistic technique. The most important factors for price stickiness are implicit/explicit price contracts and minimum price volatility. Imperfect competitive market structure, number of regular customers, backward-looking behavior, and credibility of central bank and size of the firm are important determinants of price rigidity. While economic literacy and information set regarding expected inflation make the prices flexible. Study recommend that monetary policy of Pakistan should use other transmission channels of money supply instead of traditional channel, because it is found that the degree of price rigidity is low in Pakistan. Keywords: Price Rigidity, Price Flexibility, Price Contract, Frequency of Price Change.

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“…regular or occasional, which supported the economic theories, i.e. implicit price contract theory (Pasten, Schoenle & Weber, 2020).…”

Section: Price-setting (Frequency Of Price Change)supporting

confidence: 54%

“…Economic literature identifies various reasons of price stickiness, i.e. menu cost, implicit/explicit contracts and customer relations (Singh & Ru, 2019;and Pasten, Schoenle & Weber, 2020).…”

Section: R M B Rmentioning

confidence: 99%

Determinants of Price Rigidity and Flexibility: Some Survey Evidence for the Pakistan.

Iqbal¹,

Amin²,

Alam³

2020

IRMBR

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“…Idiosyncratic shocks propagate through changes in prices. In companion papers (see Pasten, Schoenle, and Weber (2017) and Cox, Mueller, Pasten, Schoenle, and Weber (2019)), we study how price rigidities affect the importance of idiosyncratic shocks as an origin of aggregate fluctuations and the size of fiscal multipliers.…”

Section: A Literature Reviewmentioning

confidence: 99%

The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy

Pastén¹,

Schoenle

Weber³

2019

Working Paper (Federal Reserve Bank of Cleveland)

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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.

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“…However, recent work by Gabaix (2011) and Acemoglu et al (2012) building on Long and Plosser (1983) and Horvath (1998) shows that the law of large numbers does not readily apply when the firm-size distribution or the importance of sectors as suppliers of intermediate inputs to the rest of the economy is fat-tailed (see Figure A.1 in the Online Appendix). Pasten, Schoenle, and Weber (2017a) extend their analysis to allow for heterogeneity in price stickiness across sectors and identify a frictional origin of aggregate fluctuations. Acemoglu, Akcigit, and Kerr (2015) and Barrot and Sauvagnat (2016) show networks are empirically important for aggregate fluctuations as well as for the propagation of federal spending, trade, technology, and knowledge shocks.…”

Section: A Related Literaturementioning

confidence: 99%

Monetary Policy Through Production Networks: Evidence from the Stock Market

Ozdagli

Weber

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct (demand) effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is robust to different sample periods, event windows, and types of announcements. Direct effects are larger for industries selling most of the industry output to end-consumers compared to other industries. We find similar evidence of large indirect effects using ex-post realized cash-flow fundamentals. A simple model with intermediate inputs guides our empirical methodology. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy. Terms of use: Documents in EconStor mayJEL-Codes: E120, E310, E440, E520, G120, G140.Keywords: input-output linkages, spillover effects, asset prices, high frequency identification. Ali Ozdagli I IntroductionUnderstanding how monetary policy affects the broader economy necessarily entails understanding both how policy actions affect key financial markets, as well as how changes in asset prices and returns in these markets in turn affect the behavior of households, firms, and other decision makers. Ben S. Bernanke (2003) The objective of central banks around the world is to affect real consumption, investment, and GDP. Monetary policy can affect those real variables, but only indirectly. Central banks directly and immediately affect financial markets through interest rates, which then influences households' consumption decisions and firms' investment decisions.Empirically, financial markets react immediately and strongly to central banks' actions. Bernanke and Kuttner (2005) show an unanticipated 25-basis-point decrease in the federal funds rate leads to an increase in the CRSP value-weighted index of more than 1% within minutes of the FOMC announcement.1 Despite the consensus on the large and immediate impact of monetary policy on financial markets, we know very little about how the monetary policy actions propagate through the economy.A growing literature in macroeconomics argues microeconomic shocks might propagate through the production network, and contribute to aggregate fluctuations.In this paper, we study theoretically and empirically whether the production ne...

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Price Rigidity and the Origins of Aggregate Fluctuations

Cited by 24 publications

References 24 publications

Determinants of Price Rigidity and Flexibility: Some Survey Evidence for the Pakistan.

Determinants of Price Rigidity and Flexibility: Some Survey Evidence for the Pakistan.

The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy

Monetary Policy Through Production Networks: Evidence from the Stock Market

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