Advanced Search
MyIDEAS: Login to save this book chapter or follow this series

Individual Price Adjustment along the Extensive Margin

In: NBER Macroeconomics Annual 2012, Volume 27

Contents:

Author Info

  • Etienne Gagnon
  • David López-Salido
  • Nicolas Vincent

Abstract

Firms employ a rich variety of pricing strategies whose implications for aggregate price dynamics often diverge. This situation poses a challenge for macroeconomists interested in bridging micro and macro price stickiness. In responding to this challenge, we note that differences in macro price stickiness across pricing mechanisms can often be traced back to price changes that are either triggered or cancelled by shocks. We exploit observed micro price behavior to quantify the importance of this margin of adjustment for the response of inflation to shocks. Across a range of empirical exercises, we find strong evidence that changes in the timing of price adjustments contribute significantly to the flexibility of the aggregate price level.

(This abstract was borrowed from another version of this item.)

Download Info

If 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.
File URL: http://www.nber.org/chapters/c12753.pdf
Download Restriction: no

Bibliographic Info

as in new window

This chapter was published in:

  • Daron Acemoglu & Jonathan Parker & Michael Woodford, 2013. "NBER Macroeconomics Annual 2012, Volume 27," NBER Books, National Bureau of Economic Research, Inc, number acem12-2, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12753.

    Handle: RePEc:nbr:nberch:12753

    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    Other versions of this item:

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Emmanuel Dhyne & Luis J. Álvarez & Hervé Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lünnemann & Fabio Rumler & Jouko Vilmunen, 2005. "Price setting in the euro area: Some stylized facts from Individual Consumer Price Data," Working Paper Research, National Bank of Belgium 74, National Bank of Belgium.
    2. Pete Klenow & Ben Malin & Mark Bils, 2010. "Reset Price Inflation and the Impact of Monetary Policy Shocks," 2010 Meeting Papers, Society for Economic Dynamics 1079, Society for Economic Dynamics.
    3. Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007. "Price Stickiness in Ss Models: New Interpretations of Old Results," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1603, Cowles Foundation for Research in Economics, Yale University.
    4. Luis J. Álvarez & Ignacio Hernando, 2004. "Price setting behaviour in Spain: stylised facts using consumer price micro data," Banco de Espa�a Working Papers 0422, Banco de Espa�a.
    5. Burstein, Ariel Tomas & Hellwig, Christian, 2007. "Prices and Market Shares in a Menu Cost Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6504, C.E.P.R. Discussion Papers.
    6. Burstein, Ariel T., 2006. "Inflation and output dynamics with state-dependent pricing decisions," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(7), pages 1235-1257, October.
    7. Eden, Benjamin, 1993. "Inflation and Price Adjustment: An Analysis of Micro Data," Working Papers, University of Iowa, Department of Economics 94-13, University of Iowa, Department of Economics, revised 1994.
    8. Peter J. Klenow & Jonathan L. Willis, 2006. "Real rigidities and nominal price changes," Research Working Paper, Federal Reserve Bank of Kansas City RWP 06-03, Federal Reserve Bank of Kansas City.
    9. Alberto Cavallo & Roberto Rigobon, 2011. "The Distribution of the Size of Price Changes," NBER Working Papers 16760, National Bureau of Economic Research, Inc.
    10. Bonomo, Marco Antônio Cesar & Garcia, René, 2000. "The Macroeconomic Effects of Infrequent Information With Adjustment Costs," Economics Working Papers (Ensaios Economicos da EPGE) 384, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    11. Eyal Baharad & Benjamin Eden, 2004. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 613-641, July.
    12. Anil K. Kashyap, 1990. "Sticky prices: new evidence from retail catalogs," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 112, Board of Governors of the Federal Reserve System (U.S.).
    13. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
    14. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
    15. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
    16. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(2), pages 349-89, April.
    17. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Rigidities and Aggregate Price Dynamics," NBER Working Papers 4162, National Bureau of Economic Research, Inc.
    18. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
    19. Mark Gertler & John Leahy, 2008. "A Phillips Curve with an Ss Foundation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 116(3), pages 533-572, 06.
    20. Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 896, Board of Governors of the Federal Reserve System (U.S.).
    21. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
    22. Marco Bonomo & Carlos Carvalho, 2004. "Endogenous Time-Dependent Rules and Inflation Inertia," Macroeconomics, EconWPA 0402005, EconWPA, revised 19 May 2005.
    23. Bartosz Mackowiak & Mirko Wiederholt, 2004. "Optimal Sticky Prices under Rational Inattention," SFB 649 Discussion Papers SFB649DP2005-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany, revised Jul 2005.
    24. Caballero, Ricardo J & Engel, Eduardo M R A, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(2), pages 359-83, May.
    25. Dotsey, Michael & King, Robert G., 2005. "Implications of state-dependent pricing for dynamic macroeconomic models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(1), pages 213-242, January.
    26. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 171-199.
    27. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2004. "Large Devaluations and the Real Exchange Rate," NBER Working Papers 10986, National Bureau of Economic Research, Inc.
    28. Oleksiy Kryvtsov & Peter J. Klenow, 2004. "State-Dependent or Time-Dependent Pricing: Does It Matter For Recent U.S. Inflation?," Computing in Economics and Finance 2004, Society for Computational Economics 277, Society for Computational Economics.
    29. Eberly, J.C., 1990. "Adjustment of Consumers'durables Stocks: Evidence from Automobile Purchases," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 22-91, Wharton School - Weiss Center for International Financial Research.
    30. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    31. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
    32. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
    33. Laurence Ball & David Romer, 1987. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
    34. Costain, James & Nakov, Anton, 2011. "Distributional dynamics under smoothly state-dependent pricing," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(6), pages 646-665.
    35. Alan S. Blinder, 1994. "On Sticky Prices: Academic Theories Meet the Real World," NBER Chapters, in: Monetary Policy, pages 117-154 National Bureau of Economic Research, Inc.
    36. Robert B. Barsky & Christopher L. House & Miles S. Kimball, 2007. "Sticky-Price Models and Durable Goods," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 984-998, June.
    37. Fredrik Wulfsberg, 2009. "Price adjustments and inflation - evidence from Norwegian consumer price data 1975-2004," Working Paper, Norges Bank 2009/11, Norges Bank.
    38. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(4), pages 703-25, November.
    39. Bartosz Mackowiak & Frank Smets, 2008. "On implications of micro price data for macro models," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, vol. 53.
    40. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1295-1328, November.
    41. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(2), pages 675-727, May.
    42. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(3), pages 665-690, April.
    43. Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 17-26, January.
    44. Filip Matejka & Christopher A. Sims, 2011. "Discrete Actions in Information-Constrained Tracking Problems," CERGE-EI Working Papers wp441, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    45. Marco Bonomo & Carlos Carvalho & René Garcia, 2010. "State-dependent pricing under infrequent information: a unified framework," Staff Reports, Federal Reserve Bank of New York 455, Federal Reserve Bank of New York.
    46. repec:nbr:nberre:0126 is not listed on IDEAS
    47. Ben Eden & Jeff Campbell, 2004. "Rigid Prices: Evidence from US scanner data," 2004 Meeting Papers 461, Society for Economic Dynamics.
    48. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research, National Bank of Belgium 109, National Bank of Belgium.
    49. Dennis W. Carlton, 1987. "The Theory and the Facts of How Markets Clear: Is Industrial Organization Valuable for Understanding Macroeconomics?," NBER Working Papers 2178, National Bureau of Economic Research, Inc.
    50. Carlos Capistrán & Gabriel López-Moctezuma, 2010. "Forecast Revisions of Mexican Inflation and GDP Growth," Working Papers, Banco de México 2010-11, Banco de México.
    51. Judith A. Chevalier & Anil K Kashyap, 2011. "Best Prices," NBER Working Papers 16680, National Bureau of Economic Research, Inc.
    52. Martin S. Eichenbaum & Nir Jaimovich & Sergio Rebelo & Josephine Smith, 2012. "How Frequent Are Small Price Changes?," NBER Working Papers 17956, National Bureau of Economic Research, Inc.
    53. Chahrour, Ryan A., 2011. "Sales and price spikes in retail scanner data," Economics Letters, Elsevier, Elsevier, vol. 110(2), pages 143-146, February.
    54. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, Elsevier, vol. 31(3), pages 255-274, April.
    55. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
    56. Engin Kara, 2011. "Understanding and Modelling Reset Price Inflation," Bristol Economics Discussion Papers 11/623, Department of Economics, University of Bristol, UK.
    57. Péter Karádi & Ádám Reiff, 2010. "Inflation asymmetry, menu costs and aggregation bias – A further case for state dependent pricing," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2010/3, Magyar Nemzeti Bank (the central bank of Hungary).
    58. Yuriy Gorodnichenko, 2008. "Endogenous information, menu costs and inflation persistence," NBER Working Papers 14184, National Bureau of Economic Research, Inc.
    59. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1415-1464, November.
    60. Eden, Benjamin, 1994. "The Adjustment of Prices to Monetary Shocks When Trade Is Uncertain and Sequential," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(3), pages 493-509, June.
    61. Reinsdorf, Marshall, 1994. "New Evidence on the Relation between Inflation and Price Dispersion," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 720-31, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Etienne Gagnon & Benjamin R. Mandel & Robert J. Vigfusson, 2014. "Missing Import Price Changes and Low Exchange Rate Pass-Through," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 156-206, April.
    2. Gagnon, Etienne & Lopez-Salido, J. David, 2014. "Small Price Responses to Large Demand Shocks," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2014-18, Board of Governors of the Federal Reserve System (U.S.).
    3. Emi Nakamura & J�n Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 5(1), pages 133-163, 05.
    4. Ariel Burstein & Gita Gopinath, 2013. "International Prices and Exchange Rates," NBER Working Papers 18829, National Bureau of Economic Research, Inc.
    5. Berardi, N. & Sevestre, P. & Tepaut, M. & Vigneron, A., 2012. "The impact of a `soda tax' on prices. Evidence from French micro data," Working papers, Banque de France 415, Banque de France.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:12753. See general 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: ().

    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.