NBER Publications by Jon Steinsson

Product replacement is frequent in the micro-data that underlie U.S. import and export price indices, while price changes are infrequent. Consequently, over 40% of price series in the data have no price changes and roughly 70% have two price changes or less. In constructing price indices, price adjustments that occur at the time of product replacements tend to be dropped. If price adjustments disproportionately occur at the time of product replacements then price adjustments are disproportionately unobserved. We show that this \product replacement bias" may distort the measured long-run relationship between import and export prices and the exchange rate by a factor of between 1.7 and 2.2. Accounting for this bias, we find that the price of non-oil U.S. imports (relative to domestic consump...

Empirical evidence suggests that as much as 1/3 of the U.S. business cycle is due to nominal shocks. We calibrate a multi-sector menu cost model using new evidence on the cross-sectional distribution of the frequency and size of price changes in the U.S. economy. We augment the model to incorporate intermediate inputs. We show that the introduction of heterogeneity in the frequency of price change triples the degree of monetary non-neutrality generated by the model. We furthermore show that the introduction of intermediate inputs raises the degree of monetary non-neutrality by another factor of three, without adversely affecting the model's ability to match the large average size of price changes. Our multi-sector menu cost model with intermediate inputs generates variation in real output ...

Existing empirical evidence suggests that real exchange rates exhibit hump-shaped dynamics. I show that this is a robust fact across nine large, developed economies. This fact can help explain why existing sticky-price business cycle models have been unable to match the persistence of the real exchange rate. The recent literature has focused on models driven by monetary shocks. These models yield monotonic impulse responses for the real exchange rate. It is extremely difficult for models that have this feature to match the empirical persistence of the real exchange rate. I show that in response to a number of different real shocks a two-country sticky-price business cycle model yields hump-shaped dynamics for the real exchange rate. The hump-shaped dynamics generated by the model are a pow...