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Reference Prices and Nominal Rigidities

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  • Sergio Rebelo

    (Northwestern University)

  • Nir Jaimovich

    (Stanford University)

  • Martin Eichenbaum

    (Northwestern University)

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 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 us a simple macro model to argue that reference prices and costs are useful statistics for macroeconomic analysis.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1049.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1049

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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References

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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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