Real and nominal rigidities in price setting: A bayesian analysis using aggregate data

Fang Yao

No 2009-057, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: This paper uses the Bayesian approach to solve and estimate a New Keynesian model augmented by a generalized Phillips curve, in which the shape of the price reset hazards can be identi…ed using aggregate data. My empirical result shows that a constant hazard function is easily rejected by the data. The empirical hazard function for post-1983 periods in the U.S. is consistent with micro evidence obtained using data from similar periods. The hazard for pre-1983 periods, however, exhibits a remarkable increasing pattern, implying that pricing decisions are characterized by both time- and state-dependent aspects. Additionally, real rigidity plays an important role, but not as big a role as found in empirical studies using limited information methods.

Keywords: Real rigidity; Nominal rigidity; Hazard function; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E12 E31 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2009-057

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