We study economies where price stickiness arises due to the simultaneous presence of both menu and information costs.We identify the relative importance of these costs using firm's survey data and analyze the response of prices and output following a permanent unexpected monetary shock. For a given frequency of price adjustment, we find that the information friction significantly amplifies the real effect of the shock when the shock is small, or when it is not known by firms. Instead, when the shock is large and known to firms the flexibility of prices increases and the real effects gradually vanish.

Monetary shocks in models with observation and menu costs / Alvarez, Fernando; Lippi, Francesco; Paciello, Luigi. - In: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION. - ISSN 1542-4766. - 16:2(2018), pp. 353-382. [10.1093/jeea/jvx013]

Monetary shocks in models with observation and menu costs

Lippi, Francesco
;
2018

Abstract

We study economies where price stickiness arises due to the simultaneous presence of both menu and information costs.We identify the relative importance of these costs using firm's survey data and analyze the response of prices and output following a permanent unexpected monetary shock. For a given frequency of price adjustment, we find that the information friction significantly amplifies the real effect of the shock when the shock is small, or when it is not known by firms. Instead, when the shock is large and known to firms the flexibility of prices increases and the real effects gradually vanish.
Economics, Econometrics and Finance (all)2001 Economics, Econometrics and Finance (miscellaneous)
Monetary shocks in models with observation and menu costs / Alvarez, Fernando; Lippi, Francesco; Paciello, Luigi. - In: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION. - ISSN 1542-4766. - 16:2(2018), pp. 353-382. [10.1093/jeea/jvx013]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/182159
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