7,278 research outputs found
Menu Costs and Inflation Asymmetries Some Micro Data Evidence
No full textThe paper explains the observed asymmetric inflation response to value-added tax (VAT) changes in Hungary by calibrating a standard sectoral menu cost model on a new micro-level CPI data set. The model is able to reproduce important moments of the data, and finds that the asymmetry can be explained by the interaction of menu costs, (sectoral) trend inflation and forward-looking firms, thereby it provides direct evidence to the argument of Ball and Mankiw (1994).Menu Cost, Inflation Asymmetry, Sectoral Heterogeneity, Value-Added Tax
Menu Costs and Inflation Asymmetries - Some Micro Data Evidence
No full textThe paper explains the observed asymmetric inflation response to value-added tax (VAT) changes in Hungary by calibrating a standard sectoral menu cost model on a new micro-level CPI data set. The model is able to reproduce important moments of the data, and finds that the asymmetry can be explained by the interaction of menu costs, (sectoral) trend inflation and forward looking firms, thereby it provides direct evidence to the argument of Ball and Mankiw (1994).Menu Cost, Inflation Asymmetry, Sectoral Heterogeneity, Value-Added Tax
Menu Costs, Posted Prices, and Multiproduct Retailers
No full textWe use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.Menu Cost, Posted Prices, Multiproduct Retailer, Price Rigidity, Sticky Prices, Cost of Price Adjustment, Time Dependent Pricing
Inflation asymmetry, menu costs and aggregation bias – A further case for state dependent pricing
No full textAsymmetric inflation response to aggregate shocks is an identifying macro-prediction of state dependent pricing models with trend inflation (Ball and Mankiw, 1994). The paper uses the natural experiment of symmetric value-added tax (VAT) changes in Hungary with highly asymmetric inflation responses to provide further evidence for state-dependent pricing and for the Ball-Mankiw conjecture. The paper shows, furthermore, that while a standard menu cost model like that of Golosov and Lucas (2007) underestimates the observed asymmetry, a model of multi-product firms that takes sectoral heterogeneity explicitly into consideration can quantitatively account for the inflation asymmetry observed in the data. This aggregation bias of the standard model is the result of the strong interaction term between trend inflation and menu costs in determining asymmetry in the model, and the positive correlation between sectoral inflation rates and menu costs in the data. The paper implies that the real effects of negative monetary shocks can be substantial even in the standard Golosov and Lucas (2007) model if these additional factors are taken into consideration.aggregation bias, inflation asymmetry, menu cost, sectoral heterogeneity, value-added tax
The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains
No full textWe use store-level data to document the exact process of changing prices and to directly measure menu costs at five multi-store supermarket chains. We show that changing prices in these establishments is a complex process, requiring dozens of steps and a nontrivial amount of resources. The menu costs average 0.52/price change. These menu costs may be forming a barrier to price changes. Specifically, (1) a supermarket chain facing higher menu costs (due to item pricing laws which require a separate price tag on each item) changes prices 2 1/2 times less frequently than the other four chains; (2) within this chain, the prices of products exempt from the law are changed over three times more frequently than the products subject to the law.Menu Cost, Posted Prices, Multiproduct Retailer, Price Rigidity, Sticky Prices, Rigid Prices, Cost of Price Adjustment, New Keynesian Economics, Time Dependent Pricing
The menu approach to developing country external debt : an analysis of commercial banks'choice behavior
No full textThis study provides evidence that bank characteristics are significant determinants of commercial-bank choice behavior when confronted with a menu of options. It develops a theoretical model of bank choice behavior and empirically tests its implications using data from the 1988 Brazilian financing package. The empirical results show that bank characteristics are capable of explaining over 80 percent of this choice. One of the main implications of the theoretical model is that under risk-neutrality assumption, financially stronger and more exposed banks prefer to exit. The findings have several important implications for the new debt reduction strategy. (i) First, larger debt reductions operated on a market basis are more costly, per unit of debt reduced. In order to increase debt reduction, weaker banks must be convinced to exit, increasing the needed exit price. (ii) Second, the exit price depends on the strength of the banking industry, and thus, the effectiveness of the present debt strategy is affected by changes in the world economy. In periods of booms, banks become stronger and exit prices are reduced. (iii) Third, regulators can affect the cost of debt reduction by altering the regulatory framework within which the banks operate. (iv) Fourth, LDC debt reductions are beneficial to the deposit insurance agencies of the major creditor nations.Financial Intermediation,Economic Theory&Research,Municipal Financial Management,Financial Crisis Management&Restructuring,Banks&Banking Reform
Endogenous information, menu costs and inflation persistence
No full textThis paper develops a model where firms make state-dependent decisions on both pricing and acquisition of information. It is shown that when information is not perfect, menu costs combined with the aggregate price level serving as an endogenous public signal generate rigidity in price setting even when there is no real rigidity. Specifically, firms reveal their information to other firms by changing their prices. Because the cost of changing price is borne by a firm but the benefit from better information goes to other firms, firms have an incentive to postpone price changes until more information is revealed by other firms via the price level. The information externality and menu costs reinforce each other in delaying price adjustment. As a result, the response of inflation to nominal shocks is both sluggish and hump-shaped. The model can also qualitatively capture a number of stylized facts about price setting at the micro level and inflation at the macro level.
A comparison of menu-costs in open and closed economies with a mixed industrial structure
No full textIn this paper we develop Dixon and Hansen (1997) to allow for two-sector small open economy in which the non-traded sector is monopolistic. The closed economy version of the model generalises Dixon/Hansen to allow for diminishing returns on the traded sector. We compare the short-run impact of menu costs on the economy and also the size of menu costs needed to sustain nominal rigidity in both the open and closed economies. We find that whilst the welfare gains from monetary expansion are of a similar magnitude, nominal rigidity can occur for much smaller menu costs than in the closed economy case. Hence we argue that menu costs and the resultant nominal rigidities are more likely to be important in an open economy.Menu costs, open economy, welfare, monopolistic competition.
Correcting menu usability problems with sound
No full textFuture human-computer interfaces will use more than just graphical output to display information. In this paper we suggest that sound and graphics together can be used to improve interaction. We describe an experiment to improve the usability of standard graphical menus by the addition of sound. One common difficulty is slipping off a menu item by mistake when trying to select it. One of the causes of this is insufficient feedback. We designed and experimentally evaluated a new set of menus with much more salient audio feedback to solve this problem. The results from the experiment showed a significant reduction in the subjective effort required to use the new sonically-enhanced menus along with significantly reduced error recovery times. A significantly larger number of errors were also corrected with sound
Are buybacks back? Menu-driven debt-reduction schemes with heterogenous creditors
No full textThere is always some price that is low enough so that a debtor country gains by buying back some of its debts. Similarly, there is always some price that is high enough so that creditors gain by selling their debt claims. What is needed is a mechanism that allows trades to take place at some price within this range. One mechanism, the market buyback, has been called a boondoggle. However, market buybacks are too expensive from the debtor's point of view and faced with a buyback bid, each creditor has incentives to hold onto its claim unless the bid is larger than the value of debt after the deal. Concerted debt-reduction agreements can overcome this type of coordination failure, but they may be difficult to reach in practice because of the heterogeneity of creditors. The authors argue that the menu approach to debt reduction retains the advantages but not the inconvenience of buybacks and concerted agreements. They introduce a model of bank asset pricing in the presence of tax incentives and deposit insurance. They then derive the equilibrium level of exit and new money for a distributionof creditors facing a given menu program. They show that the optimal menu includes some positive level of debt repurchase in almost all cases - challenging the argument that buybacks are undesirable. The authors conclude that the menu program dominates the standard buyback and new money approaches.Banks&Banking Reform,Economic Theory&Research,Financial Intermediation,Financial Crisis Management&Restructuring,Municipal Financial Management
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