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 231, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Using data on product-level prices matched to the producing firm´s unit labor 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 Ma´ckowiak 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 coeffients cients not significantly different from unity.

Keywords: Price Setting; Business Cycles; Information; Micro Data (search for similar items in EconPapers)
JEL-codes: D80 E30 L16 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2009-08-01
New Economics Papers: this item is included in nep-cba and nep-mic
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Citations: View citations in EconPapers (4)

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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 rigidities: evidence from matched firm-level data on product prices and unit labor cost (2011)
Working Paper: Evaluating microfoundations for aggregate price regidities: evidence from matched firm-level data on product prices and unit labor cost (2009)
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