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Sectoral Price Data and Models of Price Setting

Author

Listed:
  • Mirko Wiederholt

    (Northwestern University)

  • Emanuel Moench

    (Federal Reserve Bank of New York)

  • Bartosz Maćkowiak

    (European Central Bank)

Abstract

We use a statistical model to estimate impulse responses of sectoral price indices to aggregate shocks and to sector-specific shocks. In the median sector, 100 percent of the long-run response of the sectoral price index to a sector-specific shock occurs in the month of the shock. The Calvo model and the sticky-information model match this finding only under extreme assumptions concerning the profit-maximizing price. By contrast, the rational inattention model matches this finding without an extreme assumption concerning the profit-maximizing price. Furthermore, we find little variation across sectors in the speed of response of sectoral price indices to sector-specific shocks. The rational inattention model matches this finding, while the Calvo model predicts far too much cross-sectional variation in the speed of response to sector-specific shocks.

Suggested Citation

  • Mirko Wiederholt & Emanuel Moench & Bartosz Maćkowiak, 2009. "Sectoral Price Data and Models of Price Setting," 2009 Meeting Papers 666, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:666
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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