Individual Price Adjustment Along the Extensive Margin

62 Pages Posted: 18 Sep 2012

See all articles by Etienne Gagnon

Etienne Gagnon

Board of Governors of the Federal Reserve System

David Lopez-Salido

Board of Governors of the Federal Reserve System

Nicolas Vincent

HEC Montreal - Institute of Applied Economics

Multiple version iconThere are 3 versions of this paper

Date Written: August 4, 2012

Abstract

Firms employ a rich variety of pricing strategies whose implications for aggregate price dynamics often diverge. This situation poses a challenge for macroeconomists interested in bridging micro and macro price stickiness. In responding to this challenge, we note that differences in macro price stickiness across pricing mechanisms can often be traced back to price changes that are either triggered or cancelled by shocks. We exploit observed micro price behavior to quantify the importance of this margin of adjustment for the response of inflation to shocks. Across a range of empirical exercises, we find strong evidence that changes in the timing of price adjustments contribute significantly to the flexibility of the aggregate price level.

Keywords: Inflation, intensive margin, extensive margin

JEL Classification: E31

Suggested Citation

Gagnon, Etienne and Lopez-Salido, David and Vincent, Nicolas, Individual Price Adjustment Along the Extensive Margin (August 4, 2012). FRB International Finance Discussion Paper No. 1052. Available at SSRN: https://ssrn.com/abstract=2147944 or http://dx.doi.org/10.2139/ssrn.2147944

Etienne Gagnon (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
2024523522 (Phone)

David Lopez-Salido

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nicolas Vincent

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

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