Emi Nakamura

Cost Pass-Through in the U.S. Coffee Industry

A rich data set of coffee prices and costs was used to determine to what extent changes in commodity costs affect manufacturer and retail prices. On average, a 10-cent increase in the cost of a pound of green coffee beans in a given quarter results in a 2-cent increase in manufacturer and retail prices in that quarter. If a cost change persists for several quarters, it will be incorporated into manufacturer prices approximately cent-forcent with the commodity-cost change. Given the substantial fixed costs and markups involved in coffee manufacturing, this translates into about a 3-percent change in retail prices for a 10-percent change in commodity prices. We do not find robust evidence that coffee prices respond more to increases than to decreases in costs.

High Frequency Identification of Monetary Non-Neutrality: The Information Effect

We present estimates of monetary non-neutrality based on evidence from high-frequency responses of real interest rates, expected inflation, and expected output growth. Our identifying assumption is that unexpected changes in interest rates in a 30-minute window surrounding scheduled Federal Reserve announcements arise from news about monetary policy. In response to an interest rate hike, nominal and real interest rates increase roughly one-for-one, several years out into the term structure, while the response of expected inflation is small. At the same time, forecasts about output growth also increase—the opposite of what standard models imply about a monetary tightening. To explain these facts, we build a model in which Fed announcements affect beliefs not only about monetary policy but also about other economic fundamentals. Our model implies that these information effects play an important role in the overall causal effect of monetary policy shocks on output.

DECONSTRUCTING THE SUCCESS OF REAL BUSINESS CYCLES

The empirical success of Real Business Cycle (RBC) models is often judged by their ability to explain the behavior of a multitude of real macroeconomic variables using a single exogenous shock process. This paper shows that in a model with the same basic structure as the bare bones RBC model, monetary, cost-push or preference shocks are equally successful at explaining the behavior of macroeconomic variables. Thus, the empirical success of the RBC model with respect to standard RBC evaluation techniques arises from the basic form of the dynamic stochastic general equilibrium model, not from the specific role of the productivity shock. (JEL E32, E37)