TY  - JOUR
AU  - Nakamura,Emi
AU  - Steinsson,Jón
TI  - Monetary Non-Neutrality in a Multi-Sector Menu Cost Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14001
PY  - 2008
Y2  - May 2008
UR  - http://www.nber.org/papers/w14001
L1  - http://www.nber.org/papers/w14001.pdf
N1  - Author contact info:
Emi Nakamura
Columbia Business School
3022 Broadway, Uris Hall 820
New York, NY 10027
Tel: 212/854-8162
E-Mail: enakamura@columbia.edu

Jón Steinsson
Department of Economics
Columbia University
1026 International Affairs Building
420 West 118th Street
New York, NY 10027
Tel: 212/854-3690
Fax: 212/854-8059
E-Mail: jsteinsson@columbia.edu
AB  - 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 in response to calibrated aggregate nominal shocks that can account for roughly 23% of the U.S. business cycle.
ER  -