Pricing Behaviour and the Response of Hours to Productivity Shocks

Francesco Nucci and Domenico J. Marchetti

No 5504, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Recent contributions have suggested that technology shocks have a negative impact on hours, contrary to the prediction of standard flexible-price models of the business cycle. Some authors have interpreted this finding as evidence in favour of sticky-price models, while others have either extended flexible-price models or disputed the empirical finding itself. In this paper we estimate a variety of alternative TFP measures for a representative sample of Italian manufacturing firms and on average find a negative effect of productivity shocks on hours. Using the reported frequency of price reviews, we show that the contractionary effect is stronger for firms with more flexible prices. Price stickiness remains a crucial factor in the response of hours even if product storability or market power are allowed for. Our results hold under alternative assumptions for the stationarity of hours per capita.

Keywords: Productivity shocks; Price rigidity; Labour input (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Pricing Behavior and the Response of Hours to Productivity Shocks (2007)
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