Highlights 2018

WP 18/02

In “Comments on “Unobservable Selection and Coefficient Stability: Theory and Evidence” and “Poorly Measured Confounders are More Useful on the Left Than on the Right””, Franco Peracchi, with Giuseppe De Luca and Jan R. Magnus, establish a linkage between the approaches proposed by Oster (2017) and Pei, Pischke and Schwandt (2017) which contribute to the development of inferential procedures for causal effects in the challenging and empirically relevant situation where the unknown data-generation process is not included in the set of models considered by the investigator. The authors show that the general misspecification framework recently proposed by De Luca, Magnus and Peracchi (2018) is particularly suited to analyze and understand the implications of the restrictions imposed by the two approaches.

WP 18/01

In “Temporary Price Changes, Inflation Regimes and the Propagation of Monetary Shocks”, Francesco Lippi, with Fernando Alvarez, analyze the implications of a sticky price model where firms choose a price plan, namely a set of two prices for their product. While changing the plan entails a “menu cost”, either price in the plan can be charged at any point in time. This generates a persistent reference price level and many short-lived deviations from it, as seen in many datasets. Interestingly, modeling temporary price changes substantially alters the real effect of monetary policy. In the continuous time model, the real effect of monetary shocks is inversely proportional to the number of plan changes, but independent of the number of price changes. Thus a very modest response of the aggregate price level can coexist with a very large number of price changes. The paper also presents evidence consistent with the model implications using CPI data for Argentina across a wide range of inflation rates.



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