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: Timo Haber  

Publisher's Link: https://doi.org/10.1093/ej/ueab049



Papers and Publications



Recent Publications


Onatski, A. and Wang, C. Spurious Factor Analysis Econometrica [2021]

Huffman, D., Raymond, C. and Shvets, J. Persistent Overconfidence and Biased Memory: Evidence from Managers American Economic Review [2022]

Evans, R. A. and Reiche, S. K. When Is a Contrarian Adviser Optimal? American Economic Journal: Microeconomics, forthcoming [2022]

Aidt, T. S., Albornoz, F. and Hauk, E. Foreign Influence and Domestic Policy Journal of Economic Literature [2021]