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Micro-based estimates of heterogeneous pricing rules: the united states vs. The euro area

  • Luis J. Álvarez

    ()

    (Banco de España)

  • Pablo Burriel

    ()

    (Banco de España)

This paper presents US and euro area estimates for a fully heterogeneous model, in which there is a continuum of f rms setting prices with a constant probability of adjustment, which may differ from f rm to f rm. 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 f nd that nominal shocks have a greater real impact in the fully heterogeneous economy than in the standard Calvo model. We also f nd 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.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/10/Fic/dt1019e.pdf
File Function: First version, June 2010
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1019.

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Length: 35 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:bde:wpaper:1019
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