Sticky prices: what is the evidence?
This article reviews the idea that sticky prices are important for understanding business cycles. Mark Wynne begins with a critical survey of the literature documenting the stylized facts about prices in individual markets. His first point is that there is remarkably little evidence that the actual transactions prices of most products are, in fact, sticky. Such evidence as there is to support the notion of widespread price stickiness is heavily biased toward low-tech products that account for a very small fraction of total output and is a thin reed on which to base a theory of business fluctuations. Furthermore, the observation that posted prices do not change very frequently cannot always be interpreted as evidence that markets are not clearing. There is some evidence to suggest that frequently firms alter product characteristics other than price to allocate goods and services, and that these changes in product characteristics are unobserved. ; In view of the difficulty in interpreting whether prices are at other than market-clearing values, Wynne argues that the only true test of a model in which price stickiness plays a major role in explaining business cycles is to look at how well it explains the cyclical phenomena it is supposed to explain. One simple test of a model along these lines consists of looking at the various correlations generated by the model and comparing them with the data. Wynne reviews some recent attempts along these lines and concludes that, while there may be some role for price stickiness in explaining business cycles in the U.S. economy, the case remains unproven.
Volume (Year): (1995)
Issue (Month): Q I ()
|Contact details of provider:|| Web page: http://www.dallasfed.org/|
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mark A. Wynne & Fiona Sigalla, 1993.
"A survey of measurement biases in price indexes,"
9340, Federal Reserve Bank of Dallas.
- Koelln, K. & Rush, M., 1990. "Rigid Prices And Flexible Products," Papers 90-1, Florida - College of Business Administration.
- Rockoff,Hugh, 2004.
Cambridge University Press, number 9780521522038.
- Eden, Benjamin, 1993.
"Inflation and Price Adjustment: An Analysis of Micro Data,"
94-13, University of Iowa, Department of Economics, revised 1994.
- Benjamin Eden, 2001. "Inflation and Price Adjustment: An Analysis of Microdata," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 607-636, July.
- Blinder, Alan S, 1991.
"Why Are Prices Sticky? Preliminary Results from an Interview Study,"
American Economic Review,
American Economic Association, vol. 81(2), pages 89-96, May.
- Alan S. Blinder, 1991. "Why are Prices Sticky? Preliminary Results from an Interview Study," NBER Working Papers 3646, National Bureau of Economic Research, Inc.
- Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
- Cho, J.O. & Cooley, T.F., 1991.
"The Business Cycle with Nominal Contracts,"
RCER Working Papers
260, University of Rochester - Center for Economic Research (RCER).
- Lee E. Ohanian & Alan C. Stockman, 1994. "Short-run effects on money when some prices are sticky," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-24.
- Laurence Ball & N. Gregory Mankiw, 1994.
"A sticky-price manifesto,"
Federal Reserve Bank of Dallas, issue Apr.
- Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December.
- Anil K. Kashyap, 1990.
"Sticky prices: new evidence from retail catalogs,"
Finance and Economics Discussion Series
112, Board of Governors of the Federal Reserve System (U.S.).
- Anil K Kashyap, 1994. "Sticky Prices: New Evidence from Retail Catalogs," NBER Working Papers 4855, National Bureau of Economic Research, Inc.
- Anil K. Kashyap, 1991. "Sticky prices: new evidence from retail catalogs," Working Paper Series, Macroeconomic Issues 91-26, Federal Reserve Bank of Chicago.
- Carlton, Dennis W., 1989.
"The theory and the facts of how markets clear: Is industrial organization valuable for understanding macroeconomics?,"
Handbook of Industrial Organization,
in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 15, pages 909-946
- Dennis W. Carlton, 1987. "The Theory and the Facts of How Markets Clear: Is Industrial Organization Valuable for Understanding Macroeconomics?," NBER Working Papers 2178, National Bureau of Economic Research, Inc.
- Dennis W. Carlton, 1986. "The Theory and the Facts of How Markets Clear: Is Industrial Organization Valuable for Understanding Macroeconomics?," University of Chicago - George G. Stigler Center for Study of Economy and State 44, Chicago - Center for Study of Economy and State.
- Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
- Finn E. Kydland, 1989. "The role of money in a business cycle model," Discussion Paper / Institute for Empirical Macroeconomics 23, Federal Reserve Bank of Minneapolis.
- George J. Stigler & James K. Kindahl, 1970. "The Behavior of Industrial Prices," NBER Books, National Bureau of Economic Research, Inc, number stig70-1, October.
- Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
- Murray Foss, 1993. "Does Government Regulation Inhibit the Reporting of Transactions Prices by Business?," NBER Chapters, in: Price Measurements and Their Uses, pages 275-304 National Bureau of Economic Research, Inc.
- Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
When requesting a correction, please mention this item's handle: RePEc:fip:fedder:y:1995:i:qi:p:1-12. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Delia Rodriguez)The email address of this maintainer does not seem to be valid anymore. Please ask Delia Rodriguez to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.