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Sticky Prices

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  • Esteban Jadresic
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    Abstract

    This paper presents a model of staggered price setting that allows for a flexible distribution of the durations of the prices underlying aggregate price behavior, and estimates it with U.S. data. When tested against an unrestricted version of this model, standard models of sticky prices are rejected. In contrast, a stylized model that assumes a trimodal distribution of price durations—with clusters on the first, fourth, and eighth quarter after prices are set—easily passes the same test. In addition, this model is able to replicate the dynamic behavior of inflation and output found in the data.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/72.

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    Length: 28
    Date of creation: 01 May 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:99/72

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    Cited by:
    1. Fang Yao, 2010. "Aggregate Hazard Function in Price-Setting: A Bayesian Analysis Using Macro Data," SFB 649 Discussion Papers SFB649DP2010-020, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    2. Fang Yao, 2009. "The Cost of Tractability and the Calvo Pricing Assumption," SFB 649 Discussion Papers SFB649DP2009-042, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Carlos Viana de Carvalho, 2004. "The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia," Macroeconomics, EconWPA 0412013, EconWPA, revised 29 Jan 2005.
    4. Kevin D. Sheedy, 2007. "Intrinsic inflation persistence," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3739, London School of Economics and Political Science, LSE Library.
    5. Sbordone, A.M., 1998. "Prices and Unit Labor Costs: a New Test of Price Stickiness," Papers, Stockholm - International Economic Studies 653, Stockholm - International Economic Studies.
    6. Carla Massidda, 2005. "Estimating the New Keynesian Phillips Curve for Italian Manufacturing Sectors," Working Papers, Fondazione Eni Enrico Mattei 2005.12, Fondazione Eni Enrico Mattei.
    7. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics, EconWPA 0509017, EconWPA, revised 12 Sep 2005.
    8. 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.

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