TY  - UNPD
A1  - Beck, Günter W.
A1  - Lein, Sarah M.
T1  - Microeconometric evidence on demand-side real rigidity and
implications for monetary non-neutrality
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 534
N2  - To model the observed slow response of aggregate real variables to nominal shocks, most macroeconomic models incorporate real rigidities in addition to nominal rigidities. One popular way of modelling such a real rigidity is to assume a non-constant demand elasticity. By using a homescan data set for three European countries, including prices and quantities bought for a large number of goods, in addition to consumer characteristics, we provide estimates of price elasticities of demand and on the degree of demand-side real rigidities. We find that price elasticites of demand are about 4 in the median. Furthermore, we find evidence for demand-side real rigidities. These are, however, much smaller than what is often assumed in macroeconomic models. The median estimate for demand-side real rigidity, the super-elasticity, is in a range between 1 and 2. To quantitatively assess the implications of our empirical estimates, we calibrate a menu-cost model with the estimated super-elasticity. We find that the degree of monetary non-neutrality doubles in the model including demand-side real rigidity, compared to the model with only nominal rigidity, suggesting a multiplier effect of around two. However, the model can explain only up to 6% of the monetary non-neutrality observed in the data, implying that additional multipliers are necessary to match the behavior of aggregate variables.
T3  - CFS working paper series - 534 
KW  - demand curve
KW  - price elasticity
KW  - super-elasticity
KW  - price-setting
KW  - monetary non-neutrality
Y1  - 2016
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/41539
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-415390
UR  - https://www.ifk-cfs.de/fileadmin/downloads/publications/wp/2016/CFS_WP_534.pdf
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -