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Sectoral price data and models of price setting

Author

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  • Maćkowiak, Bartosz
  • Moench, Emanuel
  • Wiederholt, Mirko

Abstract

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 standard Calvo model and the standard sticky-information model can match this finding only under extreme assumptions concerning the profit-maximizing price. The rational-inattention model of Maćkowiak and Wiederholt [2009a. Optimal sticky prices under rational inattention. American Economic Review 99, 769–803] can match this finding without an extreme assumption concerning the profit-maximizing price. Furthermore, there is little variation across sectors in the speed of response of sectoral price indexes to sector-specific shocks. The rational-inattention model matches this finding, while the Calvo model predicts too much cross-sectional variation.

Suggested Citation

  • Maćkowiak, Bartosz & Moench, Emanuel & Wiederholt, Mirko, 2009. "Sectoral price data and models of price setting," Journal of Monetary Economics, Elsevier, vol. 56(S), pages 78-99.
    • Handle: RePEc:eee:moneco:v:56:y:2009:i:s:p:s78-s99
    DOI: 10.1016/j.jmoneco.2009.06.012
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    More about this item

    Keywords

    Bayesian dynamic factor model; Calvo model; Menu cost; Sticky information; Rational inattention;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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