Some Evidence on the Importance of Sticky Prices

57 Pages Posted: 6 Oct 2005

See all articles by Mark Bils

Mark Bils

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

Peter J. Klenow

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: July 2002

Abstract

We examine the frequency of price changes for 350 categories of goods and services covering about 70% of consumer spending, based on unpublished data from the BLS for 1995 to 1997. Compared with previous studies we find much more frequent price changes, with half of prices lasting less than 4.3 months. The frequency of price changes differs dramatically across categories. We exploit this variation to ask how inflation for 'flexible-price goods' (goods with frequent changes in individual prices) differs from inflation for 'sticky-price goods' (those displaying infrequent price changes). Compared to the predictions of popular sticky price models, actual inflation rates are far more volatile and transient, particularly for sticky-price goods. The data appendix for this paper can be found at http://www.nber.org/data-appendix/w9069/

Suggested Citation

Bils, Mark and Klenow, Peter J., Some Evidence on the Importance of Sticky Prices (July 2002). NBER Working Paper No. w9069. Available at SSRN: https://ssrn.com/abstract=319745

Mark Bils

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627-0158
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Peter J. Klenow (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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