Price Rigidity: Microeconomic Evidence and Macroeconomic Implications / Emi Nakamura, Jón Steinsson.

Format:

Book

Author/Creator:

Nakamura, Emi.

Contributor:

National Bureau of Economic Research.

Steinsson, Jón.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18705.

NBER working paper series no. w18705

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We review recent evidence on price rigidity from the macroeconomics literature, and discuss how this evidence is used to inform macroeconomic modeling. Sluggish price adjustment is a leading explanation for large effects of demand shocks on output and, in particular, the effects of monetary policy on output. A recent influx of data on individual prices has greatly deepened macroeconomists' understanding of individual price dynamics. However, the analysis of these new data raise a host of new empirical issues that have not traditionally been confronted by parsimonious macroeconomic models of price-setting. Simple statistics such as the frequency of price change may be misleading guides to the flexibility of the aggregate price level in a setting where temporary sales, product-churning, cross-sectional heterogeneity, and large idiosyncratic price movements play an important role. We discuss empirical evidence on these and other important features of micro price adjustment and ask how they affect the sluggishness of aggregate price adjustment and the economy's response to demand shocks.

Notes:

Print version record

January 2013.