We would like to thank Jon Temple, the editor and two anonymous referees of this journal for very helpful comments on an earlier version. Remaining errors are our own.
Relative Prices as Aggregate Supply Shocks with Trend Inflation
Version of Record online: 29 MAR 2008
©2008 The Ohio State University
Journal of Money, Credit and Banking
Volume 40, Issue 2-3, pages 389–408, March/April 2008
How to Cite
DEMERY, D. and DUCK, N. W. (2008), Relative Prices as Aggregate Supply Shocks with Trend Inflation. Journal of Money, Credit and Banking, 40: 389–408. doi: 10.1111/j.1538-4616.2008.00118.x
- Issue online: 29 MAR 2008
- Version of Record online: 29 MAR 2008
- Received April 11, 2006; and accepted in revised form July 5, 2007.
- menu cost;
- commodity price variance;
- commodity price skewness
Ball and Mankiw (1995) use a static menu-cost model to explain the historical behavior of the first and higher moments of commodity price changes in U.S. producer prices. We show that when appropriately modified for a world of positive trend inflation and forward-looking behavior by firms, the menu-cost model predicts a much weaker (possibly zero) correlation between the mean and the skewness of price changes than that found in the data.