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Micro-based Estimates of Heterogeneous Pricing Rules: The United States vs. the Euro Area

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  • Luis J. Álvarez
  • Pablo Burriel

Abstract

This paper presents US and euro area estimates for a fully heterogeneous model, in which there is a continuum of firms setting prices with a constant probability of adjustment, which may differ from firm to firm. The estimated model accurately matches the empirical distribution function of individual price durations for the US and the euro area. Incorporating these micro-based pricing rules into a DSGE model, we find that nominal shocks have a greater real impact in the fully heterogeneous economy than in the standard Calvo model. We also find that nominal and real shocks bring about a reallocation of resources among sectors. Monetary policy is found to have a greater real impact in the euro area than in the United States. Copyright © The editors of the "Scandinavian Journal of Economics" 2010 .

Suggested Citation

  • Luis J. Álvarez & Pablo Burriel, 2010. "Micro-based Estimates of Heterogeneous Pricing Rules: The United States vs. the Euro Area," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 697-722, December.
  • Handle: RePEc:bla:scandj:v:112:y:2010:i:4:p:697-722
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    Cited by:

    1. Kowalski, Tadeusz & Shachmurove, Yochanan, 2014. "The reaction of the U.S. and the European Monetary Union to recent global financial crises," Global Finance Journal, Elsevier, vol. 25(1), pages 27-47.

    More about this item

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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