Using monthly post-1995 Japanese data we propose a new sign-restriction based approach to identify monetary policy shocks when the economy is at the zero-lower bound. The identifying restrictions are thoroughly grounded in liquidity trap theory. Our results show that a quantitative easing shock can lead to a significant but temporary rise in industrial production. The effect on inflation, however, is not significantly different from zero. Our results are robust to different specifications, in particular to the further identification of aggregate demand and supply shocks under liquidity trap conditions. Accordingly, our results imply that while the Japanese Quantitative Easing experiment was successful in stimulating economic activity in the shortrun, it did not lead to any increase in the inflation rate. We believe these results are interesting not only for the Japanese economy, but also for other advanced economies, such as the U.S., where monetary policy is constrained by the ZLB.
So far, there is no consensus on the price adjustment determinants in the empirical literature. Analyzing a novel firm‐level business survey data set, we provide new insights on the price setting behavior of German retailers during a low inflation period. Relating the probability of both price and pricing plan adjustment to time‐ and state‐dependent variables, we find that state‐dependence is important; the macroeconomic environment as well as the firm‐specific condition significantly determines the timing of both actual price changes and pricing plan adjustments. Moreover, input cost changes are important determinants of price setting. Finally, price increases respond more strongly to cost shocks compared to price decreases.
Using monthly post-1995 Japanese data we propose a new sign-restriction based approach to identify monetary policy shocks when the economy is at the zero-lower bound. The identifying restrictions are thoroughly grounded in liquidity trap theory. Our results show that a quantitative easing shock can lead to a significant but temporary rise in industrial production. The effect on inflation, however, is not significantly different from zero. Our results are robust to different specifications, in particular to the further identification of aggregate demand and supply shocks under liquidity trap conditions. Accordingly, our results imply that while the Japanese Quantitative Easing experiment was successful in stimulating economic activity in the shortrun, it did not lead to any increase in the inflation rate. We believe these results are interesting not only for the Japanese economy, but also for other advanced economies, such as the U.S., where monetary policy is constrained by the ZLB.
This paper offers new insights on the price setting behaviour of German retail firms using a novel dataset that consists of a large panel of monthly business surveys from 1991-2006. The firm-level data allows matching changes in firms' prices to several other firm-characteristics. Moreover, information on price expectations allow analyzing the determinants of price updating. Using univariate and bivariate ordered probit specifications, empirical menu cost models are estimated relating the probability of price adjustment and price updating, respectively, to both time-and state-dependent variables. First, results suggest an important role for state-dependence; changes in the macroeconomic and institutional environment as well as firm-specific factors are significantly related to the timing of price adjustment. These findings imply that price setting models should endogenize the timing of price adjustment in order to generate realistic predictions concerning the transmission of monetary policy. Second, an analysis of price expectations yields similar results providing evidence in favour of state-dependent sticky plan models. Third, intermediate input cost changes are among the most important determinants of price adjustment suggesting that pricing models should explicitly incorporate price setting at different production stages. However, the results show that adjustment to input cost changes takes time indicating "additional stickiness" at the last stage of processing.
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