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Consistent Evidence on Duration Dependence of Price Changes

Author

Listed:
  • Fernando Alvarez
  • Katarína Borovičková
  • Robert Shimer

Abstract

We develop a linear GMM estimator of the discrete-time mixed proportional hazard (MPH) model of duration with an arbitrary distribution of unobserved heterogeneity. We allow for competing risks, observable characteristics, and censoring. We prove our estimator is consistent and apply it to the duration of price spells. We find substantial unobserved heterogeneity with economically meaningful implications for the response of output to a monetary policy shock in a model with time-dependent pricing rules and for the degree of state dependence in a model of price plans.

Suggested Citation

  • Fernando Alvarez & Katarína Borovičková & Robert Shimer, 2025. "Consistent Evidence on Duration Dependence of Price Changes," American Economic Review, American Economic Association, vol. 115(10), pages 3322-3366, October.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:10:p:3322-66
    DOI: 10.1257/aer.20211317
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    More about this item

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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