Erwan Gautier (Bank of France), 03.05.2023

In a broad class of sticky price models, theory predicts that the ratio of the kurtosis to the frequency of price changes is a sufficient statistic for the cumulative impulse response of prices (CIRP) to a nominal shock. Using several millions of daily gasoline prices in France, we provide supporting evidence of this prediction. The CIRP correlates with the kurtosis to frequency ratio, but also with both frequency and kurtosis taken separately. The sign and the magnitude of the correlations are fully in line with theoretical predictions. Other moments of the price change distribution do not correlate with CIRP.

Coauthors: Magali MARX, Paul VERTIER