A State-Dependent Model of Intermediate Goods Pricing
38 Pages Posted: 24 Aug 2010 Last revised: 30 Jun 2023
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A State-Dependent Model of Intermediate Goods Pricing
Date Written: August 2010
Abstract
Recent analyses of transaction-level datasets have generated new stylized facts on price setting and greatly influenced the empirical open- and closed-economy macroeconomics literatures. This work has uncovered marked heterogeneity in price stickiness, demonstrated that even non-zero price changes do not fully "pass through" exchange rate shocks, and offered evidence of synchronization in the timing of price changes. Further, intrafirm prices have been shown to differ from arm's length prices in each of these characteristics. This paper develops a state-dependent model of intermediate goods pricing, which allows for arm's length and intrafirm transactions, and is capable of generating these empirical pricing patterns.
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