Sectoral Price Data and Models of Price Setting

Mirko Wiederholt (), Emanuel Moench and Bartosz Maćkowiak

No 666, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: We use a statistical model to estimate impulse responses of sectoral price indices to aggregate shocks and to sector-specific shocks. In the median sector, 100 percent of the long-run response of the sectoral price index to a sector-specific shock occurs in the month of the shock. The Calvo model and the sticky-information model match this finding only under extreme assumptions concerning the profit-maximizing price. By contrast, the rational inattention model matches this finding without an extreme assumption concerning the profit-maximizing price. Furthermore, we find little variation across sectors in the speed of response of sectoral price indices to sector-specific shocks. The rational inattention model matches this finding, while the Calvo model predicts far too much cross-sectional variation in the speed of response to sector-specific shocks.

Date: 2009
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Journal Article: Sectoral price data and models of price setting (2009)
Working Paper: Sectoral Price Data and Models of Price Setting (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed009:666

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