Sticky Prices: An Empirical Assessment of Alternative Models
IMF Working Papers, May 1, 1999
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Bibliographic details
- Authors: Esteban Jadresic
- Published: May 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451849325.001
Research Question and Model
- 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.
- Compares this flexible-duration/staggered-price model against an unrestricted version of the same model and against standard models of sticky prices.
Key Empirical Findings
- "When tested against an unrestricted version of this model, standard models of sticky prices are rejected."
- 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.
- The stylized trimodal model is able to replicate the dynamic behavior of inflation and output found in the data.
Subjects and Keywords
- Subject: Econometric analysis, Inflation, Inflation persistence, Price adjustments, Price elasticity, Prices, Sticky prices, Vector autoregression
- Keywords: aggregate price, Inflation, nominal interest rate, output equation, Price adjustments, price decision, price duration, Price elasticity, price setting, rearranging terms, staggered price, staggered price setting, Sticky prices, United States, Vector autoregression, WP
Core Contributions and Implications
- Demonstrates the importance of allowing flexible distributions of price durations for modeling aggregate price behavior.
- Provides empirical evidence that standard sticky-price models may be inadequate when contrasted with a flexible-duration framework.
- Shows that a trimodal clustering of price durations (quarters 1, 4, and 8) can both pass specification tests and reproduce observed dynamics of inflation and output.
Source: IMF Working Paper — Sticky Prices: An Empirical Assessment of Alternative Models by Esteban Jadresic, May 1, 1999.
Content in this bundle
- Sticky Prices: An Empirical Assessment of Alternative Models - WP/99/72