Sectoral Price Data and Models of Price Setting

Bartosz Maćkowiak, Mirko Wiederholt () and Emanuel Moench

No 7339, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We estimate impulse responses of sectoral price indexes 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 standard Calvo model and the standard sticky-information model can match this finding only under extreme assumptions concerning the profit-maximizing price. The rational-inattention model of Ma´ckowiak and Wiederholt (2009a) can match this finding without an extreme assumption concerning the profit-maximizing price. Furthermore, there is little variation across sectors in the speed of response of sectoral price indexes to sector-specific shocks. The rational-inattention model matches this finding, while the Calvo model predicts too much cross-sectional variation.

Keywords: Bayesian dynamic factor model; Calvo model; Menu cost; Rational inattention; Sticky information (search for similar items in EconPapers)
JEL-codes: C11 D21 D83 E31 (search for similar items in EconPapers)
Date: 2009-06
New Economics Papers: this item is included in nep-cba
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Citations: View citations in EconPapers (106)

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Related works:
Journal Article: Sectoral price data and models of price setting (2009)
Working Paper: Sectoral Price Data and Models of Price Setting (2009)
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