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Price-Setting with Asynchronous Adjustments to Firm Prices and Output: Evidence using Direct Survey Measures

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  • Mahony, Michael
  • Lee, Kevin
  • Mizen, Paul

Abstract

This paper makes two key contributions to the existing literature on the standard New Keynesian Phillips Curve (NKPC). First, it drops the restrictive and unfounded assumption in the NKPC that a constant proportion of firms adjust their price each period. By introducing asynchronous adjustments to firm prices (measured using firm-level survey responses) into the NKPC microfoundations a new asynchronous NKPC is derived, which directly incorporates the forward-looking behaviour of firms. Second, this paper proposes a new direct measure of marginal costs based on firm-level survey responses to changes in output and average costs. The key results show that the new direct measure of marginal costs performs well in both the standard and new asynchronous NKPC. In general, marginal costs are comparatively more important in explaining inflation in the asynchronous NKPC.

Suggested Citation

  • Mahony, Michael & Lee, Kevin & Mizen, Paul, 2023. "Price-Setting with Asynchronous Adjustments to Firm Prices and Output: Evidence using Direct Survey Measures," Discussion Papers escoe-dp-2023-09, Economic Statistics Centre of Excellence.
    • Handle: RePEc:eoe:escoed:escoe-dp-2023-09
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    Keywords

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    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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