Étienne Gagnon "Lentement, le fou rentre, prend son coeur dans ses mains et se couche par-dessus."  etigag[at]gmail.com etienne.gagnon[at]frb.gov Hello! I am an economist working in the Division of International Finance at the Federal Reserve Board in Washington (D.C.).* My research program focuses on price-setting issues in macroeconomic models, with a special interest in the Mexican economy. Research - Recherche Individual Price Adjustment along the Extensive Margin As the recent literature makes clear, firms employ a rich variety of price-setting strategies with often diverging implications for aggregate price dynamics. This heterogeneity poses a challenge for macroeconomists interested in bridging micro and macro price stickiness. In responding to this challenge, we follow Caballero and Engel (2007) by expressing the macro price response to shocks in terms of micro price adjustment along an intensive and an extensive margin. The intensive margin is related to the frequency of price optimization absent aggregate shocks whereas the extensive margin captures price adjustments triggered or cancelled by aggregate shocks. We use variation in the shape of the distribution of consumer price changes to show that adjustment along the extensive margin was key to the price level response to some macroeconomic shocks. Using a variety of micro datasets, we also report evidence that items with large deviations from their optimum are more likely than others to adjust their price. Our evidence points to a key role of the extensive margin for macro price adjustment. Draft presented at NBER's 27th annual conference on macroeconomics The Hitchhiker's Guide to Missing Import Price Changes and Pass-Through A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics (BLS) microdata, we derive empirical bounds on the magnitude of these biases and construct alternative price indexes that are less subject to selection effects. Our analysis suggests that the biases induced by selective exits and entries do not materially alter the literatures view that pass-through to U.S. import prices is low over the short to medium term horizons that are most useful for both forecasting and differentiating amongst economic models. Most recent draft: December 2011 Price Setting during Low and High Inflation: Evidence from Mexico This paper provides new insight into the relationship between inflation and consumer price setting by examining a large data set of Mexican consumer prices covering episodes of both low and high inflation, as well as the transition between the two. Overall, the economy shares several characteristics with time-dependent models when the annual inflation rate is low (below 10-15%), while displaying strong state dependence when inflation is high (above 10-15%). At low inflation levels, the aggregate frequency of price changes responds little to movements in inflation because movements in the frequency of price decreases partly offset movements in the frequency of price increases. When the annual inflation rate rises beyond 10-15 percent, however, there are no longer enough price decreases to counterbalance the rising occurrence of price increases, making the frequency of price changes more responsive to inflation. It is shown that a simple menu-cost model with idiosyncratic technology shocks predicts remarkably well the level of the average frequency and magnitude of price changes over a wide range of inflation. Published in the Quarterly Journal of Economics, vol. 124(3), pages 1221-1263, August 2009. International Finance Discussion Paper (IFDP): May 2007 Note: The IFDP version includes sectoral comparisons and uses a slightly larger data set of products than the published version, which focuses on the aggregate aspects and discusses the dynamic properties of the model. Interest on Excess Reserves as a Monetary Policy Instrument: the Experience of Foreign Central Banks This paper reviews the experience of eight major foreign central banks with policy interest rates comparable to the interest rate on excess reserves paid by the Federal Reserve. We pursue two main lines of inquiry: 1) To what extent have these policy interest rates been lower bounds for short-term market rates, and 2) to what extent has tightening that included increasing these policy rates been achieved without reliance on reductions in reserves or other deposits held at the central bank? The foreign experience suggests that policy rate floors can be effective lower bounds for market rates, although incomplete access to central bank accounts and interest on them weakens this result. In addition, the foreign experience suggests that tightening by increasing the interest rate paid on central bank balances can help reduce or eliminate the need to drain balances. These results are consistent with theoretical results that show that tightening without draining is possible, irrespective of whether excess reserves are large or small. International Finance Discussion Paper (IFDP): March 2010
This paper investigates whether extensions of the Calvo and menu-cost models that include idiosyncratic technology shocks are consistent with key features of individual consumer price adjustment. The comparison of the models focuses on three facts pertaining to the impact of inflation on the setting of consumer prices. First, the average frequency of consumer price changes initially rises slowly with the level of inflation, becoming more responsive when annual inflation gets beyond 10-15 percent. Second, the distribution of nonzero price changes contains a large number of both small and large price increases and decreases at low, medium, and high levels of inflation. Third, the average magnitude of price increases and decreases varies little with the duration of price spells. The menu-cost model is consistent with the first and third facts, but the Calvo model, while inconsistent with these two facts, provides a much better fit of the distribution of price changes. Most recent draft: September 2008
Discussions "Real Rigidities: Evidence from an Online Marketplace" by Takayuki Mizuno, Makoto Nirei, and Tsutomu Watanabe, presented at the conference "Understanding price dynamics: recent advances," Banque de France, 15-16 October 2009. slides "A Test for the Presence of Central Bank Intervention in the Foreign Exchange Market with an Application to the Bank of Canada" par Douglas Hodgson, Montebello, 48e congrès annuel de la Société canadienne de sciences "Microeconomic sources of real exchange rate variation" by Chris Telmer (Carnegie Mellon), Mario Crucini (Vanderbilt University), Canadian Macro Study Group, Ottawa, 10 November 2007. slides "Regular Adjustment : Theory and Evidence" by Jerzy D. Konieczny and Fabio Rumler, Rimini Center For Economic Analysis Colloquium on the Macroeconomics of Price Setting, May 2007. slides. *The views expressed on this site are solely my own and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of any person associated with the Federal Reserve System **Les opinions exprimées sur ce site sont personnelles et ne peuvent aucunement être interprétées comme reflétant celles du Board of Governors of the Federal Reserve System ou de toute personne associée avec le Federal Reserve System. |