Pricing Models: A Bayesian DSGE Approach for the U.S. Economy

Jean‐philippe Laforte

Journal of Money, Credit and Banking, 2007, vol. 39, issue s1, 127-154

Abstract: This paper compares and estimates three pricing mechanisms in the context of a small DSGE model of the U.S. economy. We interpret our results as favoring the pricing mechanism presented in Wolman (1999 Wolman model) over the New Keynesian model with indexation (Gali and Gertler 1999, Smets and Wouters 2004a) and the sticky information model of Mankiw and Reis (2002). The key factor that explains the performance of the Wolman model is that the data reject the key assumption of the New Keynesian model that the firm's probability of price change is constant over time and independent of the contract's vintage. Our results also show that incorporating indexation in the New Keynesian model represents a poor expedient in matching the autocorrelation function of the inflation process over the last 20 years.

Date: 2007
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https://doi.org/10.1111/j.1538-4616.2007.00018.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:39:y:2007:i:s1:p:127-154

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