Prices are Sticky After All
By Patrick J. Kehoe, Virgiliu Midrigan. 2010
195 citations recorded by the source corpus.
Recent studies say prices change every four months. Economists have interpreted this high frequency as evidence against the importance of sticky prices for the monetary transmission mechanism. Theory implies that if most price changes are regular, as they are in the standard New Keynesian model, then this interpretation is correct. But, if most price changes are temporary, as they are in the data, then it is incorrect. Temporary changes have two striking features: after a change, the nominal price returns exactly to its pre-existing level, and temporary changes are clustered in time. Our model, which replicates these features, implies that temporary changes cannot offset monetary shocks well, whereas regular changes can. Since regular prices are much stickier than temporary ones, our model, in which prices change as frequently as they do in the micro data, predicts that the aggregate price level is as sticky as in a standard model in which micro level prices change once every 12 months. In this sense, prices are sticky after all.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/fcf034db7fb637bcdafc95c736c3881557598ebf
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Argia M. Sbordone
- G. Ascari
- F. Mat
- Ester Faia
- Sophocles Mavroeidis
- Edward Nelson
- Karl Whelan
- Ignazio Angeloni
In Finance
Citations in the corpus
- The Macroeconomics of Trend Inflation (2014, background): “56 Kobayashi and Muto (2011) and Ascari and Florio (2012) extend the analysis in Ascari and Ropele (2009) by introducing adaptive”
- Rationally Inattentive Seller: Sales and Discrete Pricing (2016, background): “1 Kehoe and Midrigan (2014) 0.”