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How Rigid Are Producer Prices?

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  • Pinelopi Goldberg

    (Princeton University)

  • Rebecca Hellerstein

    (Federal Reserve Bank of New York)

Abstract

How rigid are producer prices? Conventional wisdom is that producer prices are more rigid than and so play less of an allocative role than do consumer prices. In the 1987-2008 micro data collected by the U.S. Bureau of Labor Statistics for the PPI, we find that producer prices for finished goods and services in fact exhibit roughly the same rigidity as do consumer prices that include sales, and substantially less rigidity than do consumer prices that exclude sales. Large firms change prices two to three times more frequently than do small firms, and by smaller amounts, particularly for price decreases. Longer price durations are associated with larger price changes, though there is considerable heterogeneity in this relationship. Long-term contracts are associated with somewhat greater price rigidity for goods and services, though the differences are not dramatic. The size of price decreases plays a key role in inflation dynamics, while the size of price increases does not. The frequencies of price increases and decreases tend to move together, and so cancel one another out.

Suggested Citation

  • Pinelopi Goldberg & Rebecca Hellerstein, 2009. "How Rigid Are Producer Prices?," Working Papers 1184, Princeton University, Department of Economics, Center for Economic Policy Studies..
  • Handle: RePEc:pri:cepsud:193goldberg.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jörn Kleinert & Julien Martin & Farid Toubal, 2015. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 134-159, October.
    2. Natalia Fabra & Mar Reguant, 2014. "Pass-Through of Emissions Costs in Electricity Markets," American Economic Review, American Economic Association, vol. 104(9), pages 2872-2899, September.
    3. Fernando Alvarez & Francesco Lippi, 2014. "Price Setting With Menu Cost for Multiproduct Firms," Econometrica, Econometric Society, vol. 82(1), pages 89-135, January.
    4. Hellerstein, Rebecca & Villas-Boas, Sofia B., 2010. "Outsourcing and pass-through," Journal of International Economics, Elsevier, vol. 81(2), pages 170-183, July.
    5. Simon Gilchrist & Raphael Schoenle & Jae Sim & Egon Zakrajšek, 2017. "Inflation Dynamics during the Financial Crisis," American Economic Review, American Economic Association, vol. 107(3), pages 785-823, March.
    6. Eijffinger, Sylvester C W & Grajales, Anderson & Uras, Rasim Burak, 2015. "Heterogeneity in Wage Setting Behavior in a New-Keynesian Model," CEPR Discussion Papers 10532, C.E.P.R. Discussion Papers.
    7. Bhattarai, Saroj & Schoenle, Raphael, 2014. "Multiproduct firms and price-setting: Theory and evidence from U.S. producer prices," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 178-192.
    8. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
    9. repec:taf:nzecpp:v:51:y:2017:i:3:p:217-236 is not listed on IDEAS
    10. Cao, Shutao & Dong, Wei & Tomlin, Ben, 2015. "Pricing-to-market, currency invoicing and exchange rate pass-through to producer prices," Journal of International Money and Finance, Elsevier, vol. 58(C), pages 128-149.
    11. Miles Parker, 2017. "Price-setting behaviour in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 51(3), pages 217-236, September.
    12. Shruti Tripathi & Ashima Goyal, 2011. "Relative prices, the price level and inflation: Effects of asymmetric and sticky adjustment," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-026, Indira Gandhi Institute of Development Research, Mumbai, India.

    More about this item

    Keywords

    Producer prices; consmer prices; contracts;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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