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Is Firm Pricing State or Time-Dependent? Evidence from US Manufacturing

Author

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  • Virgiliu Midrigan

    (Ohio State University)

Abstract

If firm pricing is state, rather than time-dependent, firms are more likely to change prices whenever aggregate and idiosyncratic shocks reinforce each other and trigger desired price changes in the same direction. The distribution of idiosyncratic shocks across adjusting firms therefore varies over time in response to economy-wide disturbances: in times of, say, monetary expansions, the fraction of adjusting firms that have negative idiosyncratic technology shocks should increase. Using measures of technology shocks derived from production function estimates for four-digit US manufacturing industries, we find that sectoral inflation rates are more responsive to negative, as opposed to positive technology disturbances in periods of higher economy-wide inflation, commodity price increases and expansionary monetary policy shocks. We argue, using a quantitative state-dependent sticky price model calibrated to match key features of the US micro-price data, that these results suggest that pricing is state-dependent in US manufacturing.

Suggested Citation

  • Virgiliu Midrigan, 2005. "Is Firm Pricing State or Time-Dependent? Evidence from US Manufacturing," Macroeconomics 0511005, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0511005
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    References listed on IDEAS

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    Cited by:

    1. Brent, Neiman, 2011. "A state-dependent model of intermediate goods pricing," Journal of International Economics, Elsevier, vol. 85(1), pages 1-13, September.
    2. Chi-Young Choi, 2010. "Reconsidering the Relationship between Inflation and Relative Price Variability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 769-798, August.
    3. David Demery, 2010. "State-Dependent Pricing and the Non-Neutrality of Money," Bristol Economics Discussion Papers 10/615, Department of Economics, University of Bristol, UK.

    More about this item

    Keywords

    state-dependent pricing; time-dependent pricing; technology shocks;

    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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