Alberto Cavallo’s research while affiliated with Harvard University and other places

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Publications (2)

Large Shocks Travel Fast
  • Article

December 2024

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7 Reads

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1 Citation

American Economic Review Insights

Alberto Cavallo

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Ken Miyahara

We document a sizeable increase in the frequency of price adjustments following the large energy shocks of 2022. We use a tractable New Keynesian model, calibrated to the preshock data, to interpret such a pattern. The calibration highlights the state dependence of firms’ decisions: prices are adjusted rapidly when markups are misaligned. In the model, a large cost shock triggers a swift increase in the frequency of price adjustments, causing a rapid pass-through from costs to prices. Time-dependent models, such as the Calvo model, miss this frequency response, failing to capture the sudden inflation surge after a large shock. (JEL D22, E12, E31, L11, L66, Q43)

Citations (1)

... For instance, , using US import prices, show that goods with a higher frequency of price changes exhibit higher long-run pass-through than that of low frequency. Additionally, Cavallo et al. (2024), by using data from The Billion Prices Project (Cavallo and Rigobon (2016)), found that large shocks increase the frequency of price changes, leading to higher rates of cost pass-through and faster propagation of shocks. In another study using US import prices, document a large difference in FX pass-through between goods priced in domestic currency (dollar) and foreign currency 1 Although pricing behavior influences money neutrality and the shape of the Phillips curve, the literature lacks consensus on the degree of money neutrality. ...

Reference:

Pricing Behavior and Exchange Rate: Evidence from Iran Consumer Prices
Large Shocks Travel Fast
  • Citing Article

  • January 2023

SSRN Electronic Journal

Alberto Cavallo

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Ken Miyahara