
Ascari, G. and Haber, T.
Non-Linearities, State-Dependent Prices and the Transmission Mechanism of Monetary Policy
The Economic Journal
Vol. 132(641) pp. 35-37 (2022)
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.
Keywords: Sticky prices, state-dependent pricing, monetary policy
JEL Codes: E30, E52, C22
Author links:
Publisher's Link: https://doi.org/10.1093/ej/ueab049