Sticky Prices: An Empirical Assessment of Alternative Models

Esteban Jadresic

No 1999/072, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a model of staggered price setting that allows for a flexible distribution of the durations of the prices underlying aggregate price behavior, and estimates it with U.S. data. When tested against an unrestricted version of this model, standard models of sticky prices are rejected. In contrast, a stylized model that assumes a trimodal distribution of price durations—with clusters on the first, fourth, and eighth quarter after prices are set—easily passes the same test. In addition, this model is able to replicate the dynamic behavior of inflation and output found in the data.

Keywords: WP; nominal interest rate; Sticky prices; staggered price setting; United States; price duration; aggregate price; price decision; price setting; staggered price; rearranging terms; output equation; Inflation; Vector autoregression; Price elasticity; Price adjustments (search for similar items in EconPapers)
Pages: 28
Date: 1999-05-01
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Citations: View citations in EconPapers (21)

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