Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models

For a given frequency of price changes, the real e¤ect of a monetary shock is small if adjusting rms are also the ones most likely to make large price changes. This is true even if \u85rms do not self-select. We study selection and monetary non-neutrality in a large class of time-dependent sticky-price models. We show that, given the frequency of price changes, a monetary shock has a smaller real e¤ect in an economy where the hazard function is more increasing. We also nd that an economy exhibits larger monetary non-neutralities if the durations of price spells are more variable. In general, for a shock whose impulse response function can be well characterized by a polynomial of order n the real e¤ect is a function of the n+2 \u85rst moments of the distribution of durations of price spells. As a by-product, we show that our results generalize to the sticky-information setting proposed by Mankiw and Reis (2002). Finally, we provide a novel interpretation for the \u85ndings in the literature on the e¤ects of heterogeneity in price stickiness, in terms of selection e¤ects. JEL classi\u85cation codes: E1, E