Working Paper: CEPR ID: DP16626
Authors: Fernando Alvarez; Andrea Ferrara; Erwan Gautier; Herv Le Bihan; Francesco Lippi
Abstract: In a broad class of sticky price models the non-neutrality of nominal shocks is encoded by a simple sufficient statistic: the ratio of the kurtosis of the size-distribution of price changes over the frequency of price changes. We test this theoretical prediction using data for a large number of firms representative of the French economy. We use the micro data to measure the cross sectional moments, including kurtosis and frequency, for about 120 PPI industries and 220 CPI categories. We use a Factor Augmented VAR to measure the sectoral responses to a monetary shock, as summarized by the cumulative impulse response of sectoral prices (CIRP ), under three alternative identification schemes. The estimated CIRP correlates with the kurtosis and the frequency consistently with the prediction of the theory (i.e. they enter the relationship as a ratio). The analysis also shows that other moments not suggested by the theory, such as the mean, standard deviation and skewness of the size-distribution of price changes, are not correlated with the CIRP . Several robustness checks are discussed.
Keywords: Impulse Response Functions; Monetary Shocks; Generalized Hazard Function; Sticky Prices; Sufficient Statistic
JEL Codes: E3; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cumulative impulse response of sectoral prices (CIRP) (E39) | ratio of kurtosis to frequency of price changes (C46) |
| ratio of kurtosis to frequency of price changes (C46) | cumulative impulse response of sectoral prices (CIRP) (E39) |
| cumulative impulse response of sectoral prices (CIRP) (E39) | monetary non-neutrality (E49) |
| ratio of kurtosis to frequency of price changes (C46) | monetary non-neutrality (E49) |
| mean, standard deviation, and skewness of price changes (C46) | cumulative impulse response of sectoral prices (CIRP) (E39) |