Abstract :
Starting fromtheassumptionthatfirmsaremorelikelytoadjusttheirpriceswhendoing
soismorevaluable,thispaperanalyzesmonetary policyshocksinaDSGEmodelwith
firm-levelheterogeneity.Themodeliscalibratedtoretailpricemicrodata,andinflation
responsesaredecomposedinto‘‘intensive’’,‘‘extensive’’,and‘‘selection’’margins.Money
growth andTaylorruleshocksbothhavenontrivialrealeffects,becausethelowstate
dependence impliedbythedatarulesoutthestrongselectioneffectassociatedwithfixed
menucosts.Theresponsetosector-specificshocks isgradual,butinappropriateecono-
metricsmightmakeitappearimmediate.
