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How rigid are producer prices?

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  • Pinelopi Koujianou Goldberg
  • Rebecca Hellerstein

Abstract

Conventional wisdom suggests that producer prices are more rigid than consumer prices and therefore play less of a role in the allocation of goods and services. Analyzing 1987-2008 microdata collected by the U.S. Bureau of Labor Statistics for the producer price index, we find that producer prices for finished goods and services in fact exhibit roughly the same rigidity as consumer prices that include sales and substantially less rigidity than consumer prices that exclude them. Moreover, large firms change prices two to three times more frequently than small firms do, and by smaller amounts, particularly in the case of price decreases. Longer price durations are associated with larger price changes, although there is considerable heterogeneity in this relationship. Long-term contracts are associated with somewhat greater price rigidity for goods and services, although the differences are not dramatic. The size of price decreases plays a key role in inflation dynamics, while the size of price increases does not. The frequencies of price increases and decreases tend to move together and so cancel one another out.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 407.

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Date of creation: 2009
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Handle: RePEc:fip:fednsr:407

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Keywords: Price indexes ; Consumer price indexes ; Inflation (Finance) ; Prices;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Even producer prices are flexible
    by Economic Logician in Economic Logic on 2010-02-01 15:17:00
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Cited by:
  1. Saroj Bhattarai & Raphael Schoenle, 2011. "Multiproduct firms and price-setting: theory and evidence from U.S. producer prices," Globalization and Monetary Policy Institute Working Paper 73, Federal Reserve Bank of Dallas.
  2. Hellerstein, Rebecca & Villas-Boas, Sofia B., 2010. "Outsourcing and Pass-Through," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt8098p5nq, Department of Agricultural & Resource Economics, UC Berkeley.
  3. Jörn Kleinert & Julien Martin & Farid Toubal, 2012. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," Working Papers 2012-18, CEPII research center.
  4. Fernando Alvarez & Francesco Lippi, 2013. "Price setting with menu cost for multi-product firms," EIEF Working Papers Series 1302, Einaudi Institute for Economics and Finance (EIEF), revised Feb 2013.
  5. Shutao Cao & Wei Dong & Ben Tomlin, 2012. "The Sensitivity of Producer Prices to Exchange Rates: Insights from Micro Data," Working Papers 12-20, Bank of Canada.
  6. Shruti Tripathi & Ashima Goyal, 2011. "Relative prices, the price level and inflation: Effects of asymmetric and sticky adjustment," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-026, Indira Gandhi Institute of Development Research, Mumbai, India.
  7. Peter J. Klenow & Benjamin A. Malin, 2010. "Microeconomic Evidence on Price-Setting," NBER Working Papers 15826, National Bureau of Economic Research, Inc.

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