Time Variation in Price Setting and Monetary Policy Non-Neutrality

Abstract

In this paper, we examine the scope and implications of recent changes in price stickiness based on the micro price data underlying the CPI for Switzerland. We find that the average frequency of price changes and the heterogeneity of adjustment frequencies across product groups increased between 2008 and 2019. The rise in e-commerce turns out to be a major contributing factor for both these changes. Monetary non-neutrality is weakened by the increase in the average price adjustment frequency and strengthened by the increased heterogeneity of price adjustment frequencies across product groups. The two effects roughly balance between 2008–2011 and 2016–2019, implying that the net effect on monetary policy transmission has been minor.