IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

What do sticky and flexible prices tell us?

  • Millard, Stephen

    ()

    (Bank of England)

  • O'Grady, Tom

    ()

    (Massachusetts Institute of Technology)

In this paper, we investigate the information content of prices in relatively sticky-price sectors versus relatively flexible-price sectors. We first present some empirical evidence that relatively flexible prices react more to deviations of output from trend than stickier prices and that sticky prices can tell us about firms’ inflation expectations. We then develop a simple DSGE model with a sticky-price sector and a flexible-price sector and use this model to show that these empirical results are exactly what you would actually expect to see, given standard economic theory. Taken together, the results of this paper suggest that calculations of ‘flexible-price’ inflation could, potentially, be used to provide monetary policy makers with a steer on the output gap, which is notoriously hard to measure, and that calculations of ‘sticky-price’ inflation could, potentially, be used to provide monetary policy makers with a steer on the medium-term inflation expectations of price-setters.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2012/wp457.pdf
File Function: Full text
Download Restriction: no

Paper provided by Bank of England in its series Bank of England working papers with number 457.

as
in new window

Length: 29 pages
Date of creation: 20 Jul 2012
Date of revision:
Handle: RePEc:boe:boeewp:0457
Contact details of provider: Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
Email:


More information through EDIRC

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.:

as in new window
  1. Kevin D. Sheedy, 2007. "Inflation Persistence When Price Stickiness Differs Between Industries," CEP Discussion Papers dp0838, Centre for Economic Performance, LSE.
  2. Dixon, Huw & Kara, Engin, 2005. "Persistence and nominal inertia in a generalized Taylor economy: how longer contracts dominate shorter contracts," Working Paper Series 0489, European Central Bank.
  3. Altissimo, Filippo & Mojon, Benoit & Zaffaroni, Paolo, 2009. "Can aggregation explain the persistence of inflation?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 231-241, March.
  4. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
  5. Richard Mash, 2006. "Optimising Microfoundations for Inflation Persistence," Computing in Economics and Finance 2006 457, Society for Computational Economics.
  6. Sheedy, Kevin D., 2010. "Intrinsic inflation persistence," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1049-1061, November.
  7. Huw Dixon & Hervé Le Bihan, 2012. "Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro‐evidence with Macro Implications," Economic Journal, Royal Economic Society, vol. 122(560), pages 532-554, 05.
  8. Kara Engin, 2011. "Micro-Data on Nominal Rigidity, Inflation Persistence and Optimal Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-19, July.
  9. Michael F. Bryan & Brent Meyer, 2010. "Are some prices in the CPI more forward looking than others? We think so," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
  10. Dixon, Huw David & Kara, Engin, 2008. "Can we explain inflation persistence in a way that is consistent with the micro-evidence on nominal rigidity?," Cardiff Economics Working Papers E2008/22, Cardiff University, Cardiff Business School, Economics Section.
  11. Mackowiak, Bartosz Adam & Moench, Emanuel & Wiederholt, Mirko, 2009. "Sectoral Price Data and Models of Price Setting," CEPR Discussion Papers 7339, C.E.P.R. Discussion Papers.
  12. Greenslade, Jennifer & Parker, Miles, 2010. "New insights into price-setting behaviour in the United Kingdom," Bank of England working papers 395, Bank of England.
  13. Bunn, Philip & Ellis, Colin, 2010. "How do individual UK producer prices behave?," Bank of England working papers 394, Bank of England.
  14. Adam Cagliarini & Tim Robinson & Allen Tran, 2010. "Reconciling Microeconomic and Macroeconomic Estimates of Price Stickiness," RBA Research Discussion Papers rdp2010-01, Reserve Bank of Australia.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0457. 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: (Publications Team)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.