 Reconciling microeconomic and macroeconomic estimates of price stickinessAdam Cagliarini, Tim Robinson and Allen Tran Journal of Macroeconomics, 2011, vol. 33, issue 1, 102-120 Abstract: This paper attempts to reconcile the high estimates of price stickiness from macroeconomic estimates of a New-Keynesian Phillips curve (NKPC) with the lower values obtained from surveys of firms' pricing behaviour. This microeconomic evidence also suggests that the frequency with which firms adjust their prices varies across sectors. Building on the insights of Carvalho (2006), we present Monte Carlo evidence that suggests that in the presence of this heterogeneity estimates of the NKPC obtained using conventional methods, such as GMM, are likely to considerably overstate the degree of aggregate price stickiness. Furthermore, if roundabout production is a characteristic of the economy the NKPC will falsely suggest that a sizeable fraction of prices are indexed to past inflation. These problems arise because of a type of misspecification and a lack of suitable instruments. Keywords: New-Keynesian; Phillips; Curves; Inflation; Heterogeneity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:33:y:2011:i:1:p:102-120 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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