Shocks vs. Responsiveness: What Drives Time-Varying Dispersion? / David Berger, Joseph Vavra.

Format:

Book

Author/Creator:

Berger, David.

Contributor:

National Bureau of Economic Research.

Vavra, Joseph.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23143.

NBER working paper series no. w23143

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Shocks vs. Responsiveness

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

The dispersion of many economic variables is countercyclical. What drives this fact? Greater dispersion could arise from greater volatility of shocks or from agents responding more to shocks of constant size. Without data separately measuring exogenous shocks and endogenous responses, a theoretical debate between these explanations has emerged. In this paper, we provide novel identification using the open-economy environment: using confidential BLS microdata, we document a robust positive relationship between exchange rate pass-through and the dispersion of item-level price changes. We show this relationship arises naturally in models with time-varying responsiveness but is at odds with models featuring volatility shocks.

Notes:

Print version record

February 2017.