Price Stickiness: Empirical Evidence of the Menu Cost Channel
Author(s)Anderson, Eric; Jaimovich, Nir; Simester, Duncan
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A leading explanation in the economic literature is that monetary policy has real effects on the economy because firms incur a cost when changing prices. Using a unique database of cost and retail price changes, we find that variation in menu costs results in up to 13.3% fewer price increases. We confirm that these effects are allocative and have a persistent impact on both prices and unit sales. We provide evidence that the menu cost channel operates only when cost increases are small in magnitude, which is consistent with theory and provides the first empirical evidence of boundary conditions.
DepartmentSloan School of Management
Review of Economics and Statistics
Anderson, Eric, Nir Jaimovich, and Duncan Simester. “Price Stickiness: Empirical Evidence of the Menu Cost Channel.” Review of Economics and Statistics 97, no. 4 (October 2015): 813–26. © 2015 The President and Fellows of Harvard College and the Massachusetts Institute of Technology
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