Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models

38 Pages Posted: 29 Nov 2012 Last revised: 20 Jul 2018

See all articles by Carlos Carvalho

Carlos Carvalho

Asset 1 Investment Company; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Felipe F. Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2015

Abstract

For a given frequency of price adjustment, monetary non-neutrality is smaller if older prices are disproportionately more likely to change. This type of selection for the age of prices provides a complete characterization of price-setting frictions in time-dependent sticky-price models. Selection for older prices is weaker if: 1) the hazard function of price adjustment is less strongly increasing; 2) there is sectoral heterogeneity in price stickiness; 3) durations of price spells are more variable. Weaker selection for old prices implies larger monetary non-neutralities. In particular, the Taylor (1979) model exhibits maximal selection for older prices, whereas the Calvo (1983) model exhibits no selection.

Keywords: time-dependent pricing, monetary non-neutrality, general hazard function, selection effect, heterogeneity

JEL Classification: E10, E30

Suggested Citation

Carvalho, Carlos and Schwartzman, Felipe F., Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models (August 20, 2015). Available at SSRN: https://ssrn.com/abstract=2182341 or http://dx.doi.org/10.2139/ssrn.2182341

Carlos Carvalho (Contact Author)

Asset 1 Investment Company ( email )

Avenida Juscelino Kubitschek, 1600/Conj 52
São Paulo, São Paulo
Brazil

HOME PAGE: http://www.asset1.com.br

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

Felipe F. Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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