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Strategic Interaction Among Heterogeneous Price-Setters In An Estimated DSGE Model

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  • Olivier Coibion
  • Yuriy Gorodnichenko

Abstract

We consider a DSGE model in which firms follow one of four price-setting regimes: sticky prices, sticky-information, rule-of-thumb, or full-information flexible prices. The parameters of the model, including the fractions of each type of firm, are estimated by matching the moments of the observed variables of the model to those found in the data. We find that sticky-price firms and sticky-information firms jointly account for over 80% of firms in the model, with the rest largely accounted for by rule-of-thumb firms. We compare the performance of our hybrid model to pure sticky-price and sticky-information models along various dimensions, including monetary policy implications.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14323.

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Date of creation: Sep 2008
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Handle: RePEc:nbr:nberwo:14323

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