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Reference Prices and Nominal Rigidities

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  • Martin Eichenbaum
  • Nir Jaimovich
  • Sergio Rebelo

Abstract

We assess the importance of nominal rigidities using a new weekly scanner data set. We find that nominal rigidities are important but do not take the form of sticky prices. Instead, they take the form of inertia in reference prices and costs, defined as the most common prices and costs within a given quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in the probability of reference price changes and in the magnitude of these changes. We use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13829.

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Date of creation: Mar 2008
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Handle: RePEc:nbr:nberwo:13829

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  1. On the dispersion in price rigidities
    by Economic Logician in Economic Logic on 2008-09-05 16:15:00
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