Frequency of Price Adjustment and Pass-Through
AbstractWe empirically document, using U.S. import prices, that on average goods with a high frequency of price adjustment have a long-run pass-through that is at least twice as high as that of low-frequency adjusters. We show theoretically that this relationship should follow because variable mark-ups that reduce long-run pass-through also reduce the curvature of the profit function when expressed as a function of cost shocks, making the firm less willing to adjust its price. We quantitatively evaluate a dynamic menu-cost model and show that the variable mark-up channel can generate significant variation in frequency, equivalent to 37% of the observed variation in the data. On the other hand, the standard workhorse model with constant elasticity of demand and Calvo or state-dependent pricing has difficulty matching the facts. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by MIT Press in its journal Quarterly Journal of Economics.
Volume (Year): 125 (2010)
Issue (Month): 2 (May)
Contact details of provider:
Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
- Krusell, P & Smith Jr, A-A, 1995.
"Income and Wealth Heterogeneity in the Macroeconomic,"
RCER Working Papers
399, University of Rochester - Center for Economic Research (RCER).
- Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
- Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers 1997-37, Carnegie Mellon University, Tepper School of Business.
- Gust, Christopher & Leduc, Sylvain & Vigfusson, Robert, 2010.
"Trade integration, competition, and the decline in exchange-rate pass-through,"
Journal of Monetary Economics,
Elsevier, vol. 57(3), pages 309-324, April.
- Christopher Gust & Sylvain Leduc & Robert Vigfusson, 2006. "Trade Integration, Competiton, and the Decline in Exchange-rate Pass-through," 2006 Meeting Papers 165, Society for Economic Dynamics.
- Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006. "Trade integration, competition, and the decline in exchange-rate pass-through," International Finance Discussion Papers 864, Board of Governors of the Federal Reserve System (U.S.).
- Rauch, James E., 1999.
"Networks versus markets in international trade,"
Journal of International Economics,
Elsevier, vol. 48(1), pages 7-35, June.
- Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 17-26, January.
- Virgiliu Midrigan, 2005.
"International Price Dispersion in State-Dependent Pricing Models,"
- Midrigan, Virgiliu, 2007. "International price dispersion in state-dependent pricing models," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2231-2250, November.
- Kimball, Miles S, 1995.
"The Quantitative Analytics of the Basic Neomonetarist Model,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 27(4), pages 1241-77, November.
- Miles S. Kimball & Michael Woodford, 1994. "The quantitative analysis of the basic neomonetarist model," Proceedings, Federal Reserve Bank of Cleveland, pages 1241-1289.
- Miles S. Kimball, 1996. "The Quantitative Analytics of the Basic Neomonetarist Model," NBER Working Papers 5046, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1987.
"Exchange Rates and Prices,"
American Economic Review,
American Economic Association, vol. 77(1), pages 93-106, March.
- Paul R. Bergin & Robert C. Feenstra, .
"Pricing To Market, Staggered Contracts, And Real Exchange Rate Persistence,"
Department of Economics
99-01, California Davis - Department of Economics.
- Bergin, Paul R. & Feenstra, Robert C., 2001. "Pricing-to-market, staggered contracts, and real exchange rate persistence," Journal of International Economics, Elsevier, vol. 54(2), pages 333-359, August.
- Robert Feenstra & Paul Bergin, 2003. "Pricing To Market, Staggered Contracts, And Real Exchange Rate Persistence," Working Papers 991, University of California, Davis, Department of Economics.
- Paul R. Bergin & Robert C. Feenstra, 1999. "Pricing to Market, Staggered Contracts, and Real Exchange Rate Persistence," NBER Working Papers 7026, National Bureau of Economic Research, Inc.
- Maurice Obstfeld and Kenneth Rogoff., 1995.
"Exchange Rate Dynamics Redux,"
Center for International and Development Economics Research (CIDER) Working Papers
C95-048, University of California at Berkeley.
- Peter J. Klenow & Jonathan L. Willis, 2006.
"Real rigidities and nominal price changes,"
Research Working Paper
RWP 06-03, Federal Reserve Bank of Kansas City.
- Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2007.
"Currency Choice and Exchange Rate Pass-through,"
NBER Working Papers
13432, National Bureau of Economic Research, Inc.
- Pinelopi K. Goldberg & Michael M. Knetter, 1996.
"Goods Prices and Exchange Rates: What Have We Learned?,"
NBER Working Papers
5862, National Bureau of Economic Research, Inc.
- Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
- Lane, P, 1999.
"The New Open Economy Macroeconomics: A Survey,"
Trinity Economics Papers
993, Trinity College Dublin, Department of Economics.
- Mark Bils & Peter J. Klenow, 2004.
"Some Evidence on the Importance of Sticky Prices,"
Journal of Political Economy,
University of Chicago Press, vol. 112(5), pages 947-985, October.
- Ball, L. & Mankiw, N.G., 1992.
"Asymmetric Price Adjustment and Economic Fluctuations,"
Harvard Institute of Economic Research Working Papers
1602, Harvard - Institute of Economic Research.
- Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-61, March.
- Laurence Ball & N. Gregory Mankiw, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
- Ariel Burstein & Andrew Atkeson, 2005. "Trade Costs, Pricing to Market, and International Relative Prices," 2005 Meeting Papers 201, Society for Economic Dynamics.
- Gita Gopinath & Roberto Rigobon, 2008.
The Quarterly Journal of Economics,
MIT Press, vol. 123(2), pages 531-575, 05.
- Romer, David, 1990.
"Staggered price setting with endogenous frequency of adjustment,"
Elsevier, vol. 32(3), pages 205-210, March.
- David Romer., 1989. "Staggered Price Setting with Endogenous Frequency of Adjustment," Economics Working Papers 89-115, University of California at Berkeley.
- David Romer, 1989. "Staggered Price Setting with Endogenous Frequency of Adjustment," NBER Working Papers 3134, National Bureau of Economic Research, Inc.
- Andrew C. Caplin & Daniel F. Spulber, 1987.
"Menu Costs and the Neutrality of Money,"
NBER Working Papers
2311, National Bureau of Economic Research, Inc.
- Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.