35 Pages Posted: 1 Jul 2010
Date Written: June 29, 2010
This paper presents US and euro area estimates for a fully heterogeneous model, in which there is a continuum of firms setting prices with a constant probability of adjustment, which may differ from firm to firm. The estimated model accurately matches the empirical distribution function of individual price durations for the US and the euro area. Incorporating these micro based pricing rules into a DSGE model, we find that nominal shocks have a greater real impact in the fully heterogeneous economy than in the standard Calvo model. We also find that nominal and real shocks bring about a reallocation of resources among sectors. Monetary policy is found to have a greater real impact in the euro area than in the United States.
Keywords: price setting, heterogeneity, DSGE, Calvo model
JEL Classification: C40, D40, E30
Suggested Citation: Suggested Citation
Álvarez, Luis J. and Burriel, Pablo, Micro-Based Estimates of Heterogeneous Pricing Rules: The United States vs. The Euro Area (June 29, 2010). Banco de Espana Working Paper No. 1019. Available at SSRN: https://ssrn.com/abstract=1632335 or http://dx.doi.org/10.2139/ssrn.1632335