Working Paper
The relative price effects of monetary shocks
Abstract: We document the response of the individual components of the Producer Price Index (PPI) to commonly used measures of monetary shocks, and show that these responses are at variance with many widely-used ?macro? models of monetary non-neutrality. Monetary shocks are shown to have large relative price effects, resulting in an increase in the dispersion of the cross-section distribution of prices. Furthermore, in response to a contractionary (expansionary) monetary shock, a substantial number of prices tend to rise (fall). Most of the existing models of monetary nonneutrality are not capable of replicating these types of relative price responses.
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Provider: Federal Reserve Bank of Dallas
Part of Series: Working Papers
Publication Date: 2003
Number: 0306
Note: Published as: Balke, Nathan S. and Mark A. Wynne (2007), "The Relative Price Effects of Monetary Shocks," Journal of Macroeconomics 29 (1): 19-36.