Micro and Macro Cost-Price Dynamics in Normal Times and During Inflation Surges

Luca Gagliardone (), Mark Gertler (), Simone Lenzu and Joris Tielens
Additional contact information
Luca Gagliardone: https://cowles.yale.edu/people/luca-gagliardone
Mark Gertler: https://as.nyu.edu/faculty/mark-gertler.html

No 1195, Staff Reports from Federal Reserve Bank of New York

Abstract: We develop a unified approach to studying cost-price dynamics in the cross-section of firms in order to jointly explain the time series of aggregate inflation and the frequency of price changes, both during normal times and inflation surges. A key novelty is the use of microdata on firms’ prices and production costs to construct an empirical measure of price gaps—the deviation between a firm’s listed and optimal price. Conditional on the path of aggregate cost shocks extracted from the data, a state-dependent pricing model with strategic complementarities accounts well for both the linear cost-price dynamics of the pre-pandemic period and the nonlinear increase in inflation and frequency of price adjustment that followed.

Keywords: inflation dynamics; Phillips curve; nominal rigidities; firm-level microdata (search for similar items in EconPapers)
JEL-codes: D22 E30 E31 E32 (search for similar items in EconPapers)
Pages: 59
Date: 2026-05-01
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Working Paper: Micro and Macro Cost-Price Dynamics in Normal Times and During Inflation Surges (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:103257

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DOI: 10.59576/sr.1195

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