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Reconciling microeconomic and macroeconomic estimates of price stickiness


  • Cagliarini, Adam
  • Robinson, Tim
  • Tran, Allen


This paper attempts to reconcile the high estimates of price stickiness from macroeconomic estimates of a New-Keynesian Phillips curve (NKPC) with the lower values obtained from surveys of firms' pricing behaviour. This microeconomic evidence also suggests that the frequency with which firms adjust their prices varies across sectors. Building on the insights of Carvalho (2006), we present Monte Carlo evidence that suggests that in the presence of this heterogeneity estimates of the NKPC obtained using conventional methods, such as GMM, are likely to considerably overstate the degree of aggregate price stickiness. Furthermore, if roundabout production is a characteristic of the economy the NKPC will falsely suggest that a sizeable fraction of prices are indexed to past inflation. These problems arise because of a type of misspecification and a lack of suitable instruments.

Suggested Citation

  • Cagliarini, Adam & Robinson, Tim & Tran, Allen, 2011. "Reconciling microeconomic and macroeconomic estimates of price stickiness," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 102-120, March.
  • Handle: RePEc:eee:jmacro:v:33:y:2011:i:1:p:102-120

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    References listed on IDEAS

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    Cited by:

    1. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-188, March.
    2. Fröhling, Annette & Lommatzsch, Kirsten, 2011. "Output sensitivity of inflation in the euro area: Indirect evidence from disaggregated consumer prices," Discussion Paper Series 1: Economic Studies 2011,25, Deutsche Bundesbank.
    3. Sean Langcake & Tim Robinson, 2013. "An Empirical BVAR-DSGE Model of the Australian Economy," RBA Research Discussion Papers rdp2013-07, Reserve Bank of Australia.
    4. Millard, Stephen & O'Grady, Tom, 2012. "What do sticky and flexible prices tell us?," Bank of England working papers 457, Bank of England.

    More about this item


    New-Keynesian Phillips Curves Inflation Heterogeneity;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles


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