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Pricing Behaviour and the Response of Hours to Productivity Shocks

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  • Marchetti, Domenico J.
  • Nucci, Francesco

Abstract

Recent contributions have suggested that technology shocks have a negative impact on hours, contrary to the prediction of standard flexible-price models of the business cycle. Some authors have interpreted this finding as evidence in favour of sticky-price models, while others have either extended flexible-price models or disputed the empirical finding itself. In this paper we estimate a variety of alternative TFP measures for a representative sample of Italian manufacturing firms and on average find a negative effect of productivity shocks on hours. Using the reported frequency of price reviews, we show that the contractionary effect is stronger for firms with more flexible prices. Price stickiness remains a crucial factor in the response of hours even if product storability or market power are allowed for. Our results hold under alternative assumptions for the stationarity of hours per capita.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5504.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5504

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Keywords: labour input; price rigidity; productivity shocks;

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Cited by:
  1. Fabiano Schivardi & Andrea Pozzi, 2012. "What drives firm growth? The role of demand and TFP shocks," 2012 Meeting Papers 810, Society for Economic Dynamics.
  2. KWON Hyeog Ug & Jun-Hyung KO, 2013. "Do Technology Shocks Lower Hours Worked? Evidence from the Japan Industrial Productivity Database," Discussion papers 13018, Research Institute of Economy, Trade and Industry (RIETI).
  3. Fuss, Catherine & Wintr, Ladislav, 2009. "Rigid labour compensation and flexible employment? Firm-level evidence with regard to productivity for Belgium," Working Paper Series 1021, European Central Bank.

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