skip to content

Faculty of Economics

Journal Cover

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



Papers and Publications



Recent Publications


Merrick Li, Z. and Linton, O. A ReMeDI for Microstructure Noise Econometrica [2022]

Carvalho, V. M., Nirei, M., Saito, Y. U. and Tahbaz-Salehi, A. Supply Chain Disruptions: Evidence from the Great East Japan Earthquake Quarterly Journal of Economics [2021]

Boneva, L., Elliott, D., Kaminska, I., Linton, O., McLaren, N. and Morley, B. The Impact of Corporate QE on Liquidity: Evidence from the UK The Economic Journal [2022]

Evans, R. A. and Reiche, S. K. When Is a Contrarian Adviser Optimal? American Economic Journal: Microeconomics [2023]