Working Paper: CEPR ID: DP14303
Authors: Günter Beck; Sarah Lein
Abstract: High degrees of demand-side real rigidities are able to generate the large monetary non-neutrality found in aggregate data. This paper provides micro-based evidence on the key parameters governing this rigidity using European homescan data. We find strong evidence for demand-side real rigidity, which is, however, significantly lower than that normally assumed in macro models. In a menu-cost model calibrated to our estimates, we show that our estimates are associated with reasonable values for production-side parameters, but they are not able to generate the degree of monetary non-neutrality observed in macro data.
Keywords: demand curve; price elasticity; superelasticity; price setting; real rigidities; monetary nonneutrality
JEL Codes: E30; E31; E50; D12; C3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high degrees of demand-side real rigidities (E19) | significant monetary nonneutrality (E49) |
| price changes (P22) | demand (R22) |
| relative price of goods (P22) | elasticity of demand (D12) |
| demand-side real rigidities (H31) | monetary nonneutrality (E49) |