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Some Evidence on the Importance of Sticky Prices

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  • Mark Bils
  • Peter J. Klenow

Abstract

We examine the frequency of price changes for 350 categories of goods and services covering about 70% of consumer spending, based on unpublished data from the BLS for 1995 to 1997. Compared with previous studies we find much more frequent price changes, with half of prices lasting less than 4.3 months. The frequency of price changes differs dramatically across categories. We exploit this variation to ask how inflation for 'flexible-price goods' (goods with frequent changes in individual prices) differs from inflation for 'sticky-price goods' (those displaying infrequent price changes). Compared to the predictions of popular sticky price models, actual inflation rates are far more volatile and transient, particularly for sticky-price goods. The data appendix for this paper can be found at http://www.nber.org/data-appendix/w9069/

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9069.

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Date of creation: Jul 2002
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Publication status: published as Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
Handle: RePEc:nbr:nberwo:9069
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Find related papers by JEL classification:
  • 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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  1. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  2. Ball, Laurence & Romer, David, 1991. "Sticky Prices as Coordination Failure," American Economic Review, American Economic Association, vol. 81(3), pages 539-52, June.
  3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
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  6. Anil K. Kashyap, 1991. "Sticky prices: new evidence from retail catalogs," Working Paper Series, Macroeconomic Issues 91-26, Federal Reserve Bank of Chicago.
  7. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  8. Ohanian, Lee E & Stockman, Alan C & Kilian, Lutz, 1995. "The Effects of Real and Monetary Shocks in a Business Cycle Model with Some Sticky Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1209-34, November.
  9. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  10. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999 1151, Society for Computational Economics.
  11. Elizabeth Caucutt & Mrinal Ghosh & Christina Kelton, 1999. "Durability Versus Concentration as an Explanation for Price Inflexibility," Review of Industrial Organization, Springer, vol. 14(1), pages 27-50, February.
  12. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  13. Sbordone, Argia, 1998. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Seminar Papers 653, Stockholm University, Institute for International Economic Studies.
  14. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
  15. Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 17-26, January.
  16. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
  17. Dennis W. Carlton, 1986. "The Theory and the Facts of How Markets Clear: Is Industrial Organization Valuable for Understanding Macroeconomics?," University of Chicago - George G. Stigler Center for Study of Economy and State 44, Chicago - Center for Study of Economy and State.
  18. Jonathan L. Willis, 2000. "Estimation of adjustment costs in a model of state-dependent pricing," Research Working Paper RWP 00-07, Federal Reserve Bank of Kansas City.
  19. Michael Dotsey & Robert G. King, 2005. "Pricing, production, and persistence," Working Papers 05-4, Federal Reserve Bank of Philadelphia.
  20. James M. MacDonald & Daniel Aaronson, 2000. "How do retail prices react to minimum wage increases?," Working Paper Series WP-00-20, Federal Reserve Bank of Chicago.
  21. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Bernanke: Inflation Expectations and Inflation Forecasting
    by Mark Thoma in Economist's View on 2007-07-10 20:08:00
  2. On the dispersion in price rigidities
    by Economic Logician in Economic Logic on 2008-09-05 16:15:00
  3. Prices are not rigid
    by Economic Logician in Economic Logic on 2008-03-12 17:51:00
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  1. Some Evidence on the Importance of Sticky Prices (JPE 2004) in ReplicationWiki
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