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

Carlsson, Mikael; Skans, Oskar

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

No 1083, Working Paper Series from European Central Bank

Abstract: Using data on product-level prices matched to the producing firm's unit labour 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 Mackowiak 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, L1

Keywords: business cycles; information; micro data; price setting (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091083

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