Sectoral Price Data and Models of Price Setting

69 Pages Posted: 26 Aug 2009

See all articles by Bartosz Maćkowiak

Bartosz Maćkowiak

European Central Bank (ECB)

Emanuel Moench

Deutsche Bundesbank; Goethe University Frankfurt - Department of Money and Macroeconomics

Mirko Wiederholt

Northwestern University - Department of Economics

Date Written: June 2009

Abstract

We estimate impulse responses of sectoral price indexes to aggregate shocks and to sector-specific shocks. In the median sector, 100 percent of the long-run response of the sectoral price index to a sector-specific shock occurs in the month of the shock. The standard Calvo model and the standard sticky-information model can match this finding only under extreme assumptions concerning the profit-maximizing price. The rational-inattention model of Ma┬┤ckowiak and Wiederholt (2009a) can match this finding without an extreme assumption concerning the profit-maximizing price. Furthermore, there is little variation across sectors in the speed of response of sectoral price indexes to sector-specific shocks. The rational-inattention model matches this finding, while the Calvo model predicts too much cross-sectional variation.

Keywords: Bayesian dynamic factor model, Calvo model, menu cost, rational inattention, sticky information

JEL Classification: C11, D21, D83, E31

Suggested Citation

Maćkowiak, Bartosz and Moench, Emanuel and Wiederholt, Mirko, Sectoral Price Data and Models of Price Setting (June 2009). CEPR Discussion Paper No. DP7339. Available at SSRN: https://ssrn.com/abstract=1461968

Bartosz Maćkowiak (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Emanuel Moench

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49 69 95662312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/emanuel-moench

Goethe University Frankfurt - Department of Money and Macroeconomics ( email )

Germany

Mirko Wiederholt

Northwestern University - Department of Economics ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
(847) 491-8227 (Phone)
(847) 491-7001 (Fax)

HOME PAGE: http://faculty.wcas.northwestern.edu/~mwi774/

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