Price Changes and Monetary Non-Neutrality

Abstract: Economists have not reached a consensus on the effectiveness of monetary policy for stimulating short-run consumption. While quantitative models are typically disciplined through average pricing moments in the data, this is not sufficient to draw conclusions on monetary non-neutrality. In this article, we quantify the importance of the age-dependence of pricing moments for monetary policy. In particular, we show that newer products change their prices more often and by a larger amount. Furthermore, these patterns are supported by a price experimentation narrative. Finally, we quantify that the stimulus effect of monetary policy can be more than three times as large when allowing for price experimentation consistent with pricing patterns of the data.

Keywords: monetary policy; pricing; consumption;

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Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2022-10

Volume: 22

Issue: 41