Price stickiness: Empirical evidence of the menu cost channel

Eric Anderson, Nir Jaimovich, Duncan Simester

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

A leading explanation in the economic literature is that monetary policy has real effects on the economy because firms incur a cost when changing prices. Using a unique database of cost and retail price changes, we find that variation in menu costs results in up to 13.3% fewer price increases. We confirm that these effects are allocative and have a persistent impact on both prices and unit sales. We provide evidence that the menu cost channel operates only when cost increases are small in magnitude, which is consistent with theory and provides the first empirical evidence of boundary conditions.

Original languageEnglish (US)
Pages (from-to)813-826
Number of pages14
JournalReview of Economics and Statistics
Volume97
Issue number4
DOIs
StatePublished - Oct 1 2015

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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