- authors raphael schoenle and jesse wursten set out to measure the selection effect in micro data. to give you a preview of their findings in a nutshell, the selection effect is absent. the probability that a given price will change increases, to a certain extent, when that price is further from the optimum. however, the probability of price adjustment conditional on an aggregate shock does not seem to depend on the distance from the optimum. the authors also discuss which models can match such price - setting behaviour. the promising candidates are state - dependent models with random menu costs and models of informationconstrained price - setting. [ 7 ] in both classes of models, the selection effect can be weak : some prices fail to adjust even though the distance from the optimum may be large, while other prices change despite that distance being small. the transmission of monetary policy in these models depends not only on nominal rigidities governed by the frequency of price changes and the selection effect, but also on whether a change in the policy rate triggers large or small price adjustments. “ real rigidities ” are features of the economy that dampen the size of these price adjustments. think of real wage rigidity, sticky intermediate input prices or inattention to inflation. models with a weak selection effect and with real rigidities conditional on an aggregate shock imply that policy rate changes have a modest effect on inflation compared with their effect on economic activity, suggesting that the phillips curve is rather flat. these models therefore meet the challenge of matching both the micro price data and the macro evidence on the effects of monetary policy. at the same time, the evidence i have summarised so far comes from the period when inflation rates were fairly stable and not far from 2 %. would we expect the same patterns in an environment of high inflation? for example, a prominent analysis of the us micro price data from the great inflation of the 1970s and early 1980s finds a substantial increase in the frequency of price changes. this was a period when the inflation rate remained above 5 % for many years and inflation expectations were not well anchored. similarly, model - based simulations from the prisma network show that, in the euro area, the frequency of price changes increases with the inflation rate – something that we are indeed observing today, with a historically high share of firms expecting to increase their prices over the coming months. according to these simulations, a material increase in the slope of the phillips curve may occur if inflation were to stay persistently

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