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Strategic Interaction among Heterogeneous Price-Setters in an Estimated DSGE Model

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  • Olivier Coibion

    (Department of Economics, College of William and Mary)

  • Yuriy Gorodnichenko

    (Department of Economics, University of California, Berkeley)

Abstract

We consider a dynamic stochastic general equilibrium (DSGE) model in which firms follow one of four price-setting regimes: sticky prices, sticky-information, rule-of-thumb, or full-information flexible prices. The parameters of the model, including the fractions of each type of firm, are estimated by matching the moments of the observed variables of the model to those found in the data. We find that sticky-price firms and sticky-information firms jointly account for over 80% of firms in the model. We compare the performance of our hybrid model to pure sticky-price and sticky-information models along various dimensions, including monetary policy implications.

Suggested Citation

  • Olivier Coibion & Yuriy Gorodnichenko, 2010. "Strategic Interaction among Heterogeneous Price-Setters in an Estimated DSGE Model," Working Papers 93, Economics Department, William & Mary.
    • Handle: RePEc:cwm:wpaper:93
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    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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