Working Paper: CEPR ID: DP14163
Authors: Almut Balleer; Peter Zorn
Abstract: We estimate the effects of monetary policy on price-setting behavior in administrative micro data underlying the German producer price index. We find a strong degree of monetary non-neutrality. After expansionary monetary policy, the mass of additional price adjustments is economically small and the average absolute size across all price changes falls. The aggregate price level hardly adjusts, and monetary policy has real effects. These estimates rule out quantitative structural models that generate small and transient effects of monetary policy through selection on large price adjustments. We provide evidence that monetary policy propagates primarily through production units with weak financial positions.
Keywords: price setting; extensive margin; intensive margin; monetary policy; local projections; menu cost; credit constraints
JEL Codes: E30; E31; E32; E44; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy shocks (E39) | price-setting behavior (L11) |
| expansionary monetary policy (E52) | frequency of price increases (E30) |
| expansionary monetary policy (E52) | average absolute size of price changes (E30) |
| monetary policy (E52) | frequency of price increases in industries with higher credit constraints (E30) |
| monetary policy (E52) | average size of price changes in industries with higher credit constraints (L16) |