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

  • Virgiliu Midrigan

    (Ohio State University)

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.

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Paper provided by EconWPA in its series Macroeconomics with number 0511005.

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Length: 43 pages
Date of creation: 01 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0511005
Note: Type of Document - pdf; pages: 43
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