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Some Evidence on the Importance of Sticky Prices

  • Mark Bils
  • Peter J. Klenow

We examine the frequency of price changes for 350 categories of goods and services covering about 70% of consumer spending, based on unpublished data from the BLS for 1995 to 1997. Compared with previous studies we find much more frequent price changes, with half of prices lasting less than 4.3 months. The frequency of price changes differs dramatically across categories. We exploit this variation to ask how inflation for 'flexible-price goods' (goods with frequent changes in individual prices) differs from inflation for 'sticky-price goods' (those displaying infrequent price changes). Compared to the predictions of popular sticky price models, actual inflation rates are far more volatile and transient, particularly for sticky-price goods. The data appendix for this paper can be found at http://www.nber.org/data-appendix/w9069/

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 112 (2004)
Issue (Month): 5 (October)
Pages: 947-985

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Handle: RePEc:ucp:jpolec:v:112:y:2004:i:5:p:947-985
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  1. Benigno, Pierpaolo, 2001. "Optimal Monetary Policy in a Currency Area," CEPR Discussion Papers 2755, C.E.P.R. Discussion Papers.
  2. Laurence Ball & David Romer, 1987. "Sticky Prices as Coordination Failure," NBER Working Papers 2327, National Bureau of Economic Research, Inc.
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  4. Michael Dotsey & Robert G. King, 2001. "Pricing, Production and Persistence," NBER Working Papers 8407, National Bureau of Economic Research, Inc.
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  8. 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 Elsevier.
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  14. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  15. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  16. Ohanian, Lee E & Stockman, Alan C & Kilian, Lutz, 1995. "The Effects of Real and Monetary Shocks in a Business Cycle Model with Some Sticky Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1209-34, November.
  17. Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 17-26, January.
  18. Elizabeth Caucutt & Mrinal Ghosh & Christina Kelton, 1999. "Durability Versus Concentration as an Explanation for Price Inflexibility," Review of Industrial Organization, Springer, vol. 14(1), pages 27-50, February.
  19. James M. MacDonald & Daniel Aaronson, 2000. "How do retail prices react to minimum wage increases?," Working Paper Series WP-00-20, Federal Reserve Bank of Chicago.
  20. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  21. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
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