Prices and Unit Labor Costs: A New Test of Price Stickiness

Argia Sbordone

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: This paper investigates the predictions of a simple optimizing model of nominal price rigidity for the dynamics of inflation. Taking as given the paths of nominal labor compensation and labor productivity to approximate the evolution of marginal costs, I determine the path of prices predicted by the solution of the firms' optimal pricing problem. Model parameters are chosen to maximize the fit with the data. I find evidence of a significant degree of price stickiness and substantial support for the forward-looking model of price setting. The results are robust to the use of alternative forecasting models for the path of unit labor costs, alternative measures of marginal costs, and alternative specifications of the model of price staggering.

Keywords: Inflation; Phillips Curve; Unit Labor Cost (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2001-10-19
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Citations: View citations in EconPapers (25)

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Related works:
Journal Article: Prices and unit labor costs: a new test of price stickiness (2002)
Working Paper: Prices and Unit Labor Costs: A New Test of Price Stickiness (2001)
Working Paper: Prices and Unit Labor Costs: a New Test of Price Stickiness (1998)
Working Paper: Prices and Unit Labor Costs: A New Test of Price Stickiness (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:200112

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