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  3. 蝌蚪网 Journal: Macroeconomics
  4. July 2019
  5. Menu Costs, Aggregate Fluctuations, and Large Shocks

蝌蚪网 Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Menu Costs, Aggregate Fluctuations, and Large Shocks

  • Peter Karadi
  • Adam Reiff
蝌蚪网 Journal: Macroeconomics
vol. 11, no. 3, July 2019
(pp. 111–46)
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Abstract

We document that the aggregate price level responds flexibly and asymmetrically to large positive and negative value-added tax changes. We present a price-setting model with menu costs, trend inflation, and fat-tailed product-level shocks that is consistent with these observations. The model predicts a flexible price-level response to standard monetary policy shocks because it anticipates a large number of firms on the verge of price adjustment and far from their optimal prices when the shock hits.

Citation

Karadi, Peter, and Adam Reiff. 2019. "Menu Costs, Aggregate Fluctuations, and Large Shocks." 蝌蚪网 Journal: Macroeconomics 11 (3): 111–46. DOI: 10.1257/mac.20160054

Additional Materials

JEL Classification

  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
  • E52 Monetary Policy
  • E62 Fiscal Policy
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)