Price Points and Price Dynamics

43 Pages Posted: 1 Feb 2018 Last revised: 6 Feb 2018

See all articles by Volker Hahn

Volker Hahn

University of Konstanz

Michal Marencak

University of Konstanz

Date Written: February 5, 2018

Abstract

This paper proposes a macroeconomic model with positive trend inflation that involves an important role for price points as well as sticky information. We argue that, in particular, a variant of our model that allows for a general distribution of price points is more successful in explaining several stylized facts of individual price setting than a benchmark model that is based on Calvo price-setting. More specifically, it makes empirically reasonable predictions with regard to the duration of price spells, the sizes of price increases and decreases, the shape of the hazard function, the fraction of price changes that are price increases, and the relationship between price changes and inflation. Moreover, our model implies plausible aggregate effects of monetary policy in contrast with a model with a prominent role for price points but no information rigidities.

Keywords: price stickiness, price point, sticky information

JEL Classification: E31, E37

Suggested Citation

Hahn, Volker and Marencak, Michal, Price Points and Price Dynamics (February 5, 2018). Available at SSRN: https://ssrn.com/abstract=3108479 or http://dx.doi.org/10.2139/ssrn.3108479

Volker Hahn (Contact Author)

University of Konstanz ( email )

Box 143
Konstanz, 78457
Germany

Michal Marencak

University of Konstanz ( email )

Box 143
Konstanz, 78457
Germany

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