Industrial Structure, Menu Costs and the Non-Neutrality of Money

TY - UNPB

T1 - Industrial Structure, Menu Costs and the Non-Neutrality of Money

AU - Dixon, Huw David

AU - Hansen, Claus Thustrup

N1 - JEL Classification: D40, E30, L16

PY - 1997

Y1 - 1997

N2 - New Keynesian literature assumes symmetric industrial structure when analysing explanations of monetary non-neutrality. We analyse the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, and others by perfect competition. The mixed industrial structure implies that there is a misallocation of the input (labour) between sectors. Following a 5% monetary expansion, the menu costs required for price rigidity in the monopolistic sector can be 50 times smaller than in the symmetric case, while the ratio of welfare gain to private loss can be as large as 200 times the corresponding symmetric case. This implies that in real world economies, menu costs may be even more significant than previously thought

AB - New Keynesian literature assumes symmetric industrial structure when analysing explanations of monetary non-neutrality. We analyse the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, and others by perfect competition. The mixed industrial structure implies that there is a misallocation of the input (labour) between sectors. Following a 5% monetary expansion, the menu costs required for price rigidity in the monopolistic sector can be 50 times smaller than in the symmetric case, while the ratio of welfare gain to private loss can be as large as 200 times the corresponding symmetric case. This implies that in real world economies, menu costs may be even more significant than previously thought

M3 - Working paper

BT - Industrial Structure, Menu Costs and the Non-Neutrality of Money

PB - Centre for Economic Policy Research

ER -