The seminar will be held in the Visitor Centre at 3:15 pm
Péter Karádi (New York University)
Abstract
The paper uses the natural experiment provided by a series of value-added tax (VAT) changes in Hungary to provide micro-data evidence on the asymmetry of inflation response to aggregate shocks. It shows that a sectoral menu cost model with multi-product firms and trend-inflation can quantitatively account for the inflation asymmetry observed in the data, thereby it provides direct evidence to the argument of Ball and Mankiw (1994). The model predicts that the effect of a positive monetary policy shock can have almost twice as large inflation effect as a negative shock.
Keywords: Menu Cost, Inflation Asymmetry, Sectoral Heterogeneity, Value-Added Tax
JEL Classification: E30