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Sectoral Price Data and Models of Price Setting

  • Mackowiak, Bartosz Adam
  • Moench, Emanuel
  • Wiederholt, Mirko

We estimate impulse responses of sectoral price indexes to aggregate shocks and to sector-specific shocks. In the median sector, 100 percent of the long-run response of the sectoral price index to a sector-specific shock occurs in the month of the shock. The standard Calvo model and the standard sticky-information model can match this finding only under extreme assumptions concerning the profit-maximizing price. The rational-inattention model of Ma´ckowiak and Wiederholt (2009a) can match this finding without an extreme assumption concerning the profit-maximizing price. Furthermore, there is little variation across sectors in the speed of response of sectoral price indexes to sector-specific shocks. The rational-inattention model matches this finding, while the Calvo model predicts too much cross-sectional variation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7339.

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Date of creation: Jun 2009
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Handle: RePEc:cpr:ceprdp:7339
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