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

Mikael Carlsson and Oskar Skans

No 2011:8, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: Using data on product-level prices matched to the producing firm's unit labor cost, we reject the hyptothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Makowiak 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.

Keywords: Price setting; business cycles; information; micro data (search for similar items in EconPapers)
JEL-codes: L16 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011-04-06
New Economics Papers: this item is included in nep-cba
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Published as Carlsson, Mikael and Oskar Nordström Skans, 'Evaluating microfoundations for aggregate price rigidities: evidence from matched firm-level data on product prices and unit labor cost' in American Economic Review, 2012, pages 1571-1595.

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Related works:
Journal Article: Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost (2012)
Working Paper: Evaluating microfoundations for aggregate price regidities: evidence from matched firm-level data on product prices and unit labor cost (2009)
Working Paper: Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm- Level Data on Product Prices and Unit Labor Cost (2009)
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