DP14303 Price elasticities and demand-side real rigidities in micro data and in macro models
|Author(s):||Günter Beck, Sarah Lein|
|Publication Date:||January 2020|
|Keyword(s):||Demand curve, monetary non-neutrality, Price elasticity, Price Setting, Real rigidities, super-elasticity|
|JEL(s):||C3, D12, E30, E31, E50|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=14303|
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.