Working Paper: CEPR ID: DP15383
Authors: Peter Karadi; Raphael Schoenle; Jesse Wursten
Abstract: We use microdata to estimate the strength of price selection - a key metric for the effect of monetary policy on the real economy. We find that price adjustment pressure at the product level does not significantly influence the probability of price adjustment in response to identified monetary and credit shocks, suggesting price selection is absent. This happens even though prices do respond significantly both to aggregate shocks and product-level adjustment pressure directly. Our results are broadly consistent with second-generation state-dependent pricing models and sizable effects of monetary policy on the real economy.
Keywords: monetary nonneutrality; state-dependent pricing; identified credit and monetary policy shocks; price-gap proxy; scanner data; PPI microdata
JEL Codes: E31; E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price adjustment pressures (E31) | probability of price changes (E30) |
| aggregate shocks (E10) | probability of price changes (E30) |
| price gap (F12) | probability of price changes (E30) |
| aggregate shock + price gap (C43) | probability of price changes (E30) |
| lagged price gap (E30) | probability of price changes (E30) |