DP7339 Sectoral Price Data and Models of Price Setting
|Author(s):||Bartosz Adam Mackowiak, Emanuel Moench, Mirko Wiederholt|
|Publication Date:||June 2009|
|Keyword(s):||Bayesian dynamic factor model, Calvo model, menu cost, rational inattention, sticky information|
|JEL(s):||C11, D21, D83, E31|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7339|
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.