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Title: Price elasticities and demand-side real rigidities in micro data and in macro models

Author(s): GŁnter Beck and Sarah Lein

Publication Date: January 2020

Keyword(s): Demand curve, monetary non-neutrality, Price elasticity, Price Setting, Real rigidities and super-elasticity

Programme Area(s): Monetary Economics and Fluctuations

Abstract: High degrees of demand-side real rigidities are able to generate the large monetary non-neutrality found in aggregate data. This paper provides micro-based evidence on the key parameters governing this rigidity using European homescan data. We find strong evidence for demand-side real rigidity, which is, however, significantly lower than that normally assumed in macro models. In a menu-cost model calibrated to our estimates, we show that our estimates are associated with reasonable values for production-side parameters, but they are not able to generate the degree of monetary non-neutrality observed in macro data.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14303

Bibliographic Reference

Beck, G and Lein, S. 2020. 'Price elasticities and demand-side real rigidities in micro data and in macro models'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14303