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Quality, price stickiness, and monetary policy

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  • Kim, Seongeun

Abstract

The low-price, low-quality brands change prices more frequently than the high-price, high-quality brands within the same product category. The greater price rigidity for high-quality brands leads to asymmetric effects of monetary policy on the rich and the poor. For instance, monetary policy shocks have larger real effects on high-income consumers who purchase more high-quality brands. This means that the rich benefit more from expansionary monetary shocks but suffer more from contractionary shocks than the poor. I build a menu-cost model with vertically differentiated products. The model predicts that monetary policy shocks have an approximately four times larger impact on the consumption of high-quality brands.

Suggested Citation

  • Kim, Seongeun, 2019. "Quality, price stickiness, and monetary policy," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    • Handle: RePEc:eee:jmacro:v:61:y:2019:i:c:4
    DOI: 10.1016/j.jmacro.2019.103129
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    2. Domonkos, Tomas & Fisera, Boris & Siranova, Maria, 2023. "Income inequality as long-term conditioning factor of monetary transmission to bank rates," Economic Modelling, Elsevier, vol. 128(C).

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    More about this item

    Keywords

    Price stickiness; Quality; Vertical differentiation; Income; Monetary policy;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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