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A Unified Framework for Using Micro-Data to Compare Dynamic Wage and Price Setting Models

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  • Huw D. Dixon

Abstract

This paper develops a statistical framework of steady-state identities which enable us to match the distributions of durations found in the micro-data to generalized Taylor and Calvo models of time-dependent pricing. We illustrate the approach with the UK micro CPI data for 2006-2009, and employ the pricing models in a simple macromodel. We find that the Generalized Taylor Economy generates a hump shaped response function, whilst the Generalized Calvo does not.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-06/cesifo1_wp3093.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3093.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3093

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Keywords: price-spell; steady state; hazard rate; Calvo; Taylor;

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  1. Álvarez, Luis J. & Burriel, Pablo & Hernando, Ignacio, 2005. "Do decreasing hazard functions for price changes make any sense?," Working Paper Series, European Central Bank 0461, European Central Bank.
  2. Dixon, Huw & Kara, Engin, 2005. "Persistence and nominal inertia in a generalized Taylor economy: how longer contracts dominate shorter contracts," Working Paper Series, European Central Bank 0489, European Central Bank.
  3. Dixon, Huw David & Kara, Engin, 2008. "Can we explain inflation persistence in a way that is consistent with the micro-evidence on nominal rigidity?," Cardiff Economics Working Papers E2008/22, Cardiff University, Cardiff Business School, Economics Section.
  4. Dixon, Huw & Kara, Engin, 2006. "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(4), pages 1119-1126, June.
  5. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics, EconWPA 0509017, EconWPA, revised 12 Sep 2005.
  6. Denis Fougère & Hervé Le Bihan & Patrick Sevestre, 2006. "Heterogeneity in Consumer Price Stickiness : A Microeconometric Investigation," Working Papers, Centre de Recherche en Economie et Statistique 2006-26, Centre de Recherche en Economie et Statistique.
  7. Coenen, Gunter & Levin, Andrew T. & Christoffel, Kai, 2007. "Identifying the influences of nominal and real rigidities in aggregate price-setting behavior," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(8), pages 2439-2466, November.
  8. Álvarez, Luis J., 2007. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Economics Discussion Papers 2007-46, Kiel Institute for the World Economy.
  9. Luca Guerrieri, 2002. "The inflation persistence of staggered contracts," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 734, Board of Governors of the Federal Reserve System (U.S.).
  10. Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2007. "What do Thirteen Million Price Records have to Say about Consumer Price Rigidity?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 139-183, 04.
  11. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 6(3), pages 1-58, December.
  12. Bunn, Philip & Ellis, Colin, 2010. "How do individual UK producer prices behave?," Bank of England working papers 394, Bank of England.
  13. Veronese, Giovanni & Fabiani, Silvia & Gattulli, Angela & Sabbatini, Roberto, 2005. "Consumer price behaviour in Italy: evidence from micro CPI data," Working Paper Series, European Central Bank 0449, European Central Bank.
  14. 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, MIT Press, vol. 114(2), pages 655-690, May.
  15. Dias, D.A. & Marques, C. Robalo & Santos Silva, J.M.C., 2007. "Time- or state-dependent price setting rules? Evidence from micro data," European Economic Review, Elsevier, Elsevier, vol. 51(7), pages 1589-1613, October.
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