Menu Costs and Inflation Asymmetries Some Micro Data Evidence

Peter Karadi () and Adam Reiff
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Peter Karadi: New York University

No 706, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: The paper explains the observed asymmetric inflation response to value-added tax (VAT) changes in Hungary by calibrating a standard sectoral menu cost model on a new micro-level CPI data set. The model is able to reproduce important moments of the data, and finds that the asymmetry can be explained by the interaction of menu costs, (sectoral) trend inflation and forward-looking firms, thereby it provides direct evidence to the argument of Ball and Mankiw (1994).

Keywords: Menu Cost; Inflation Asymmetry; Sectoral Heterogeneity; Value-Added Tax (search for similar items in EconPapers)
JEL-codes: E30 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Menu Costs and Inflation Asymmetries - Some Micro Data Evidence (2007)
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