Reference Prices and Nominal Rigidities / Martin Eichenbaum, Nir Jaimovich, Sergio Rebelo.

Format:

Book

Author/Creator:

Eichenbaum, Martin.

Contributor:

National Bureau of Economic Research.

Jaimovich, Nir.

Rebelo, Sergio.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13829.

NBER working paper series no. w13829

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

We assess the importance of nominal rigidities using a new weekly scanner data set. We find that nominal rigidities are important but do not take the form of sticky prices. Instead, they take the form of inertia in reference prices and costs, defined as the most common prices and costs within a given quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in the probability of reference price changes and in the magnitude of these changes. We use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis.

Notes:

Print version record

March 2008.