Identifying the influences of nominal and real rigidities in aggregate price-setting behavior

Andrew Levin () and Günter Coenen

No 418, Working Paper Series from European Central Bank

Abstract: We formulate a generalized price-setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs. real rigidities. Using German macroeconomic data over the period 1975Q1 through 1998Q4 toestimate this framework, we find that the data is well-characterized by a truncated Calvostyle distribution with an average duration of about two quarters. We also find that new contracts exhibit very low sensitivity to marginal cost, corresponding to a relatively high degree of real rigidity. Finally, our results indicate that backward-looking behavior is not needed to explain the aggregate data, at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective. JEL Classification: E31, E52

Keywords: inflation persistence; nominal rigidity; overlapping contracts; real rigidity; simulation-based indirect inference (search for similar items in EconPapers)
Date: 2004-11
Note: 241047
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Citations: View citations in EconPapers (44)

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Related works:
Journal Article: Identifying the influences of nominal and real rigidities in aggregate price-setting behavior (2007)
Working Paper: Identifying the Influences of Nominal and Real Rigidities in Aggregate Price-Setting Behavior (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2004418

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