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Sticky Prices; An Empirical Assessment of Alternative Models

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  • Esteban Jadresic

Abstract

This paper presents a model of staggered price setting that allows for a flexible distribution of the durations of the prices underlying aggregate price behavior, and estimates it with U.S. data. When tested against an unrestricted version of this model, standard models of sticky prices are rejected. In contrast, a stylized model that assumes a trimodal distribution of price durations—with clusters on the first, fourth, and eighth quarter after prices are set—easily passes the same test. In addition, this model is able to replicate the dynamic behavior of inflation and output found in the data.

Suggested Citation

  • Esteban Jadresic, 1999. "Sticky Prices; An Empirical Assessment of Alternative Models," IMF Working Papers 99/72, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/72
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    Cited by:

    1. Sheedy, Kevin D., 2010. "Intrinsic inflation persistence," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1049-1061, November.
    2. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 265-292, March.
    3. Carlos Carvalho & Niels Arne Dam, 2009. "Estimating the cross-sectional distribution of price stickiness from aggregate data," Staff Reports 419, Federal Reserve Bank of New York.
    4. Carlos Viana de Carvalho, 2004. "The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia," Macroeconomics 0412013, EconWPA, revised 10 Oct 2005.
    5. 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.
    6. Carla Massidda, 2005. "Estimating the New Keynesian Phillips Curve for Italian Manufacturing Sectors," Working Papers 2005.12, Fondazione Eni Enrico Mattei.
    7. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics 0509017, EconWPA, revised 10 Oct 2005.
    8. Fang Yao, 2010. "Aggregate Hazard Function in Price-Setting: A Bayesian Analysis Using Macro Data," SFB 649 Discussion Papers SFB649DP2010-020, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    9. Fang Yao, 2009. "The Cost of Tractability and the Calvo Pricing Assumption," SFB 649 Discussion Papers SFB649DP2009-042, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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