2021/06/17 by Guido Ascari, Timo Haber · 61 citations
Economics, Econometrics and Finance · #Aggregate (composite) #Credit channel #Econometrics #Economics #Financial Markets and Investment Strategies #Inflation (cosmology) #Inflation targeting #Keynesian economics #Market Dynamics and Volatility #Mechanism (biology) #Monetary Policy and Economic Impact #Monetary economics #Monetary policy #Monetary transmission mechanism #Price level #State dependent #Yield (engineering)
paper · pdf · doi:10.1093/ej/ueab049
published in The Economic Journal 132(641), 37-57 (Oxford University Press)
openalex publication_date 2021/06/17 · openalex created_date 2021/07/05 · openalex updated_date 2026/08/05
Abstract A sticky price theory of the transmission mechanism of monetary policy shocks based on state-dependent pricing yields two testable implications that do not hold in time-dependent models. First, large monetary policy shocks should yield proportionally larger initial responses of the price level. Second, in a high trend inflation regime, the response of the price level to monetary policy shocks should be larger and real effects smaller. Our analysis provides evidence supporting these non-linear effects in the response of the price level in aggregate US data, indicating state-dependent pricing as an important feature of the transmission mechanism of monetary policy.