More Facts about Prices: France Before and During the Great Recession

Using microprice data, we document new facts on price rigidity in France: (i) each month 20.1% of prices are changed, which compares to 24.1% in the United States—excluding sales, however, the fraction of prices modified each month is about the same in France and in the United States (around 17%); (ii) the distribution of price changes is quite dispersed; (iii) the frequencies of price increases and decreases contribute a lot to inflation variations, and price increases are more frequent in January (even when sales are excluded); (iv) sales contribute significantly to the volatility of inflation but play a minor role in the transmission of macroeconomic fluctuations to prices; and (v) during the Great Recession patterns of price adjustment were only slightly modified.     

Monetary Policy with Heterogeneous and Misspecified Expectations

In the recent literature on monetary policy and learning, it has been suggested that private sector's expectations should play a role in the policy rule implemented by the central bank, as they could improve the ability of the policymaker to stabilize the economy. Private sector's expectations, in these studies, are often taken to be homogeneous and rational, at least in the limit of a learning process. In this paper, instead, we consider the case in which private agents are heterogeneous in their expectations formation mechanisms and hold heterogeneous expectations in equilibrium. We investigate the impact of this heterogeneity in expectations on central bank's policy implementation and on the ensuing economic outcomes, and the general result that emerges is that the central bank should disregard inaccurate private sector expectations and solely base its policy on the accurate ones.