Central bank research hub - Papers by Virgiliu Midrigan
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Research hub papers by author Virgiliu MidriganenInventories, Markups and Real Rigidities in Sticky Price Models of the Canadian Economy
http://www.bankofcanada.ca/en/res/wp/2011/wp11-9.pdf
Bank of Canada Working papers by Oleksiy Kryvtsov and Virgiliu MidriganInventories, Markups and Real Rigidities in Sticky Price Models of the Canadian Economy2011-03-04T17:34:00ZRecent New Keynesian models of macroeconomy view nominal cost rigidities, rather than nominal price rigidities, as the key feature that accounts for the observed persistence in output and inflation. Kryvtsov and Midrigan (2010a,b) reassess these conclusions by combining a theory based on nominal rigidities and storable goods with direct evidence on inventories for the U.S. This paper applies Kryvtsov and Midrigan's model to the case of Canada. The model predicts that if costs of production are sticky and markups do not vary much in response to, say, expansionary monetary policy, firms react by excessively accumulating inventories in anticipation of future cost increases. In contrast, in the Canadian data inventories are fairly constant over the cycle and in response to changes in monetary policy. Similarly to Kryvtsov and Midrigan, we show that markups must decline sufficiently in times of a monetary expansion in order to reduce firms' incentive to hold inventories and thus bring the model's inventory predictions in line with the data. The model consistent with salient features of the dynamics of inventories in the Canadian data implies that countercyclical markups account for a sizable (50-80%) fraction of the response of real variables to monetary shocks.Inventories, Markups and Real Rigidities in Sticky Price Models of the Canadian EconomyAbstracthttp://www.bankofcanada.ca/en/res/wp/2011/wp11-9.htmlFull texthttp://www.bankofcanada.ca/en/res/wp/2011/wp11-9.pdfVirgiliu MidriganOleksiy KryvtsovOleksiy Kryvtsov and Virgiliu Midrigan2011-03Bank of Canada Working PapersInventories and Real Rigidities in New Keynesian Business Cycle Models
http://www.bankofcanada.ca/en/res/wp/2009/wp09-9.pdf
Bank of Canada Working papers by Oleksiy Kryvtsov and Virgiliu MidriganInventories and Real Rigidities in New Keynesian Business Cycle Models2009-03-05T15:29:00ZKryvtsov and Midrigan (2008) study the behavior of inventories in an economy with menu costs, fixed ordering costs and the possibility of stock-outs. This paper extends their analysis to a richer setting that is capable of more closely accounting for the dynamics of the US business cycle. We find that the original conclusion survives in this setting: namely, the model requires an elasticity of real marginal cost to output approximately equal to the inverse intertemporal elasticity of substitution in consumption in order to account for the countercyclicality of the aggregate inventory-to-sales ratio in the data.Inventories and Real Rigidities in New Keynesian Business Cycle ModelsAbstracthttp://www.bankofcanada.ca/en/res/wp/2009/wp09-9.htmlFull texthttp://www.bankofcanada.ca/en/res/wp/2009/wp09-9.pdfVirgiliu MidriganOleksiy KryvtsovOleksiy Kryvtsov and Virgiliu Midrigan2009-02Bank of Canada Working PapersE31F12Inventories, Markups, and Real Rigidities in Menu Cost Models
http://www.bankofcanada.ca/en/res/wp/2009/wp09-6.pdf
Bank of Canada Working papers by Oleksiy Kryvtsov and Virgiliu MidriganInventories, Markups, and Real Rigidities in Menu Cost Models2009-03-05T15:29:00ZReal rigidities that limit the responsiveness of real marginal cost to output are a key ingredient of sticky price models necessary to account for the dynamics of output and inflation. We argue here, in the spirit of Bils and Kahn (2000), that the behavior of marginal cost over the cycle is directly related to that of inventories, data on which is readily available.We study a menu cost economy in which firms hold inventories in order to avoid stockouts and to economize on fixed ordering costs. We find that, for low rates of depreciation similar to those in the data, inventories are highly sensitive to changes in the cost of holding and acquiring them over the cycle. This implies that the model requires an elasticity of real marginal cost to output approximately equal to the inverse of the elasticity of intertemporal substitution in order to account for the countercyclical inventory-to-sales ratio in the data. Stronger real rigidities lower the cost of acquiring and holding inventories during booms and counterfactually predict a procyclical inventory-to-sales ratio.Inventories, Markups, and Real Rigidities in Menu Cost ModelsAbstracthttp://www.bankofcanada.ca/en/res/wp/2009/wp09-6.htmlFull texthttp://www.bankofcanada.ca/en/res/wp/2009/wp09-6.pdfVirgiliu MidriganOleksiy KryvtsovOleksiy Kryvtsov and Virgiliu Midrigan2009-01Bank of Canada Working PapersE31F12Inventories, Lumpy Trade, and Large Devaluations
http://www.frbsf.org/publications/economics/papers/2008/wp08-24bk.pdf
San Francisco Fed Working Papers by Alessandria, Kaboski, MidriganInventories, Lumpy Trade, and Large Devaluations2008-11-25T09:29:59ZFixed transaction costs and delivery lags are important costs of international trade. These costs lead firms to import infrequently and hold substantially larger inventories of imported goods than domestic goods. Using multiple sources of data, we document these facts. We then show that a parsimoniously parameterized model economy with importers facing an (S, s)-type inventory management problem successfully accounts for these features of the data. Moreover, the model can account for import and import price dynamics in the aftermath of large devaluations. In particular, desired inventory adjustment in response to a sudden, large increase in the relative price of imported goods creates a short-term trade implosion, an immediate, temporary drop in the value and number of distinct varieties imported, as well as a slow increase in the retail price of imported goods. Our study of six current account reversals following large devaluation episodes in the last decade provide strong support for the model's predictions.Inventories, Lumpy Trade, and Large DevaluationsFull texthttp://www.frbsf.org/publications/economics/papers/2008/wp08-24bk.pdfJoseph KaboskiVirgiliu MidriganGeorge AlessandriaAlessandria, Kaboski, Midrigan2008-01Federal Reserve Bank of San Francisco Working PapersE31F12Inventories, Lumpy Trade, and Large Devaluations
http://www.chicagofed.org/publications/workingpapers/wp2008_07.pdf
Chicago Fed Working papers by George Alessandria, Joseph Kaboski, Virgiliu MidriganInventories, Lumpy Trade, and Large Devaluations2008-08-25T17:40:00ZInventories, Lumpy Trade, and Large DevaluationsAbstracthttp://www.chicagofed.org/economic_research_and_data/wp_abstract.cfm?pubsID=29081Full texthttp://www.chicagofed.org/publications/workingpapers/wp2008_07.pdfVirgiliu MidriganJoseph KaboskiGeorge AlessandriaGeorge Alessandria, Joseph Kaboski, Virgiliu Midrigan2008-08Federal Reserve Bank of Chicago Working PapersE31F12Temporary Price Changes and the Real Effects of Monetary Policy
http://www.minneapolisfed.org/research/WP/WP661.pdf
Minneapolis Fed Working Papers by Patrick J. Kehoe and Virgiliu MidriganTemporary Price Changes and the Real Effects of Monetary Policy2008-05-07T18:46:00ZIn the data, a large fraction of price changes are temporary. We provide a simple menu cost model which explicitly includes a motive for temporary price changes. We show that this simple model can account for the main regularities concerning temporary and permanent price changes. We use the model as a benchmark to evaluate existing shortcuts that do not explicitly model temporary price changes. One shortcut is to take the temporary changes out of the data and fit a simple Calvo model to it. If we do so prices change only every 50 weeks and the Calvo model overestimates the real effects of monetary shocks by almost 70%. A second shortcut is to leave the temporary changes in the data. If we do so prices change every 3 weeks and the Calvo model produces only 1/9 of the real effects of money as in our benchmark. We show that a simple Calvo model can generate the same real effects as our benchmark model if we set parameters so that prices change every 17 weeks.Temporary Price Changes and the Real Effects of Monetary PolicyAbstracthttp://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=1120Full texthttp://www.minneapolisfed.org/research/WP/WP661.pdfVirgiliu MidriganPatrick J. KehoePatrick J. Kehoe and Virgiliu Midrigan2008-05Federal Reserve Bank of Minneapolis Working PapersSticky Prices and Sectoral Real Exchange Rates
http://www.minneapolisfed.org/research/WP/WP656.pdf
Minneapolis Fed Working Papers by Patrick J. Kehoe and Virgiliu MidriganSticky Prices and Sectoral Real Exchange Rates2007-10-24T07:14:59ZThe classic explanation for the persistence and volatility of real exchange rates is that they are the result of nominal shocks in an economy with sticky goods prices. A key implication of this explanation is that if goods have differing degrees of price stickiness then relatively more sticky goods tend to have relatively more persistent and volatile good-level real exchange rates. Using panel data, we find only modest support for these key implications. The predictions of the theory for persistence have some modest support: in the data, the stickier is the price of a good the more persistent is its real exchange rate, but the theory predicts much more variation in persistence than is in the data. The predictions of the theory for volatiity fare less well: in the data, the stickier is the price of a good the smaller is its conditional variance while in the theory the opposite holds. We show that allowing for pricing complementarities leads to a modest improvement in the theory¿s predictions for persistence but little improvement in the theory¿s predictions for conditional variances.Sticky Prices and Sectoral Real Exchange RatesAbstracthttp://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=1102Full texthttp://www.minneapolisfed.org/research/WP/WP656.pdfVirgiliu MidriganPatrick J. KehoePatrick J. Kehoe and Virgiliu Midrigan2007-10Federal Reserve Bank of Minneapolis Working PapersSales and the Real Effects of Monetary Policy
http://www.minneapolisfed.org/research/WP/WP652.pdf
Minneapolis Fed Working Papers by Patrick J. Kehoe and Virgiliu MidriganSales and the Real Effects of Monetary Policy2007-04-23T12:17:59ZIn the data, a sizable fraction of price changes are temporary price reductions referred to as sales. Existing models include no role for sales. Hence, when confronted with data in which a large fraction of price changes are sales related, the models must either exclude sales from the data or leave them in and implicitly treat sales like any other price change. When sales are included, prices change frequently and standard sticky price models with this high frequency of price changes predict small effects from money shocks. If sales are excluded, prices change much less frequently and a standard sticky price model with this low frequency of price changes predict much larger effects of money shocks. This paper adds a motive for sales in a parsimonious extension of existing sticky price models. We show that the model can account for most of the patterns of sales in the data. Using our model as the data generating process, we evaluate the existing approaches and find that neither well approximates the real effects of money in our economy in which sales are explicitly modeled.Sales and the Real Effects of Monetary PolicyAbstracthttp://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=1090Full texthttp://www.minneapolisfed.org/research/WP/WP652.pdfVirgiliu MidriganPatrick J. KehoePatrick J. Kehoe and Virgiliu Midrigan2007-04Federal Reserve Bank of Minneapolis Working Papers