Sticky Prices: An Empirical Assessment of Alternative Models

May 1, 1999

Preview Citation

Format: Chicago

Esteban Jadresic. Sticky Prices: An Empirical Assessment of Alternative Models, (USA: International Monetary Fund, 1999) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a model of staggered price setting that allows for a flexible distribution of the durations of the prices underlying aggregate price behavior, and estimates it with U.S. data. When tested against an unrestricted version of this model, standard models of sticky prices are rejected. In contrast, a stylized model that assumes a trimodal distribution of price durations—with clusters on the first, fourth, and eighth quarter after prices are set—easily passes the same test. In addition, this model is able to replicate the dynamic behavior of inflation and output found in the data.

Subject: Econometric analysis, Inflation, Inflation persistence, Price adjustments, Price elasticity, Prices, Sticky prices, Vector autoregression

Keywords: Aggregate price, Inflation, Nominal interest rate, Output equation, Price adjustments, Price decision, Price duration, Price elasticity, Price setting, Rearranging terms, Staggered price, Staggered price setting, Sticky prices, United States, Vector autoregression, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/072
Stock No:

WPIEA0721999
ISBN:

9781451849325
ISSN:

1018-5941

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