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Real and Nominal Rigidities in Price Setting: A Bayesian Analysis Using Aggregate Data

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  • Fang Yao
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Abstract

This paper uses the Bayesian approach to solve and estimate a New Keynesian model augmented by a generalized Phillips curve, in which the shape of the price reset hazards can be identi ed using aggregate data. My empirical result shows that a constant hazard function is easily rejected by the data. The empirical hazard function for post-1983 periods in the U.S. is consistent with micro evidence obtained using data from similar periods. The hazard for pre-1983 periods, however, exhibits a remarkable increasing pattern, implying that pricing decisions are characterized by both time- and state-dependent aspects. Additionally, real rigidity plays an important role, but not as big a role as found in empirical studies using limited information methods.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2009-057.pdf
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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2009-057.

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Length: 36 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2009-057

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Keywords: Real rigidity; Nominal rigidity; Hazard function; Bayesian estimation;

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