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Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost

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  • Mikael Carlsson
  • Oskar Nordstrom Skans

Abstract

Using matched data on product-level prices and the producing firm's unit labor cost, we find a moderate pass-through of current idiosyncratic marginal-cost changes. Also, the response does not vary across firms facing very different idiosyncratic shock variances, but identical aggregate conditions. These results do not fit the predictions of Mackowiak and Wiederholt (2009). Neither do firms react strongly to predictable marginal-cost changes, as expected from Mankiw and Reis (2002). We find that firms consider both current and expected future marginal cost when setting prices. This points toward impediments to continuous price adjustments as a key driver of monetary non-neutrality.

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  • Mikael Carlsson & Oskar Nordstrom Skans, 2012. "Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost," American Economic Review, American Economic Association, vol. 102(4), pages 1571-1595, June.
  • Handle: RePEc:aea:aecrev:v:102:y:2012:i:4:p:1571-95
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    Cited by:

    1. Letterie, Wilko & Nilsen, Øivind A., 2016. "Price Changes - Stickiness and Internal Coordination in Multiproduct Firms," Discussion Paper Series in Economics 21/2016, Norwegian School of Economics, Department of Economics.
    2. M. Druant & S. Fabiani & Gabor Kezdi & Ana Lamo & Fernando Martins & R. Sabbatini, 2009. "How are Firms’ Wages and Prices Linked: Survey Evidence in Europe," Working Papers w200918, Banco de Portugal, Economics and Research Department.
    3. Carlsson, Mikael & Messina, Julián & Nordström Skans, Oskar, 2014. "Firm-Level Shocks and Labor Adjustments," Working Paper Series, Center for Labor Studies 2014:13, Uppsala University, Department of Economics.
    4. Dovern, Jonas, 2013. "When are GDP forecasts updated? Evidence from a large international panel," Economics Letters, Elsevier, vol. 120(3), pages 521-524.
    5. Carlsson, Mikael, 2014. "Selection Effects in Producer-Price Setting," Working Paper Series 2014:6, Uppsala University, Department of Economics.
    6. Tim Willems, 2017. "Actively Learning by Pricing: A Model of an Experimenting Seller," Economic Journal, Royal Economic Society, vol. 127(604), pages 2216-2239, September.
    7. Jitka Poměnková & Svatopluk Kapounek & Roman Maršálek, 2014. "Variability of Dynamic Correlation - The Evidence of Sector-Specific Shocks in V4 Countries," Prague Economic Papers, University of Economics, Prague, pages 371-387.
    8. Benkovskis, Konstantins & Fadejeva, Ludmila & Kalnberzina, Krista, 2012. "Price setting behaviour in Latvia: Econometric evidence from CPI micro data," Economic Modelling, Elsevier, vol. 29(6), pages 2115-2124.
    9. Christian Merkl, 2012. "Veldkamp, L.: Information Choice in Macroeconomics and Finance," Journal of Economics, Springer, vol. 107(1), pages 97-99, September.
    10. Druant, Martine & Fabiani, Silvia & Kezdi, Gabor & Lamo, Ana & Martins, Fernando & Sabbatini, Roberto, 2012. "Firms' price and wage adjustment in Europe: Survey evidence on nominal stickiness," Labour Economics, Elsevier, vol. 19(5), pages 772-782.
    11. Eijffinger, S.C.W. & Grajales Olarte, A. & Uras, R.B., 2015. "Heterogeneity in Wage Setting Behavior in a New-Keynesian Model," Discussion Paper 2015-024, Tilburg University, Center for Economic Research.

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    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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