University of Bonn
Department of Economics
Information about this author at RePEc
NBER Working Papers and Publications
|June 2013||Time-Varying Business Volatility, Price Setting, and the Real Effects of Monetary Policy|
with Ruediger Bachmann, Steffen Elstner, Christian Grimme: w19180
Does time-varying business volatility affect the price setting of firms and thus the transmission of monetary policy into the real economy? To address this question, we estimate from the firm-level micro data of the German IFO Business Climate Survey the impact of idiosyncratic volatility on the price setting behavior of firms. In a second step, we use a calibrated New Keynesian business cycle model to gauge the effects of time-varying volatility on the transmission of monetary policy to output. Our results are twofold. Heightened business volatility increases the probability of a price change, though the effect is small: the tripling of volatility during the recession of 08/09 caused the average quarterly likelihood of a price change to increase from 31.6% to 32.3%. Second, the effects of...