Evaluating microfoundations for aggregate price rigidities - evidence from matched firm-level data on product prices and unit labor cost

Mikael Carlsson () and Oskar Nordström Skans

No 1083, Working Paper Series from European Central Bank

Abstract: Using data on product-level prices matched to the producing firm's unit labor cost, we reject the hypothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Maćkowiak and Wiederholt (2009) version of the Rational Inattention Model. Neither do we find that firms react strongly to predictable marginal cost changes, as expected from the Mankiw and Reis (2002) Sticky Information Model. We find that, in line with Staggered Contracts models, firms consider both the current and future expected marginal cost when setting prices with a sum of coefficients not significantly different from unity. JEL Classification: D8, E3, L16.

Keywords: Price Setting; Business Cycles; Information; Micro Data. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2009-08
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Related works:
Working Paper: Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm- Level Data on Product Prices and Unit Labor Cost (2009)
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