Working Paper: NBER ID: w13829
Authors: Martin Eichenbaum; Nir Jaimovich; Sergio Rebelo
Abstract: We assess the importance of nominal rigidities using a new weekly scanner data set. We find that nominal rigidities are important but do not take the form of sticky prices. Instead, they take the form of inertia in reference prices and costs, defined as the most common prices and costs within a given quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in the probability of reference price changes and in the magnitude of these changes. We use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis.
Keywords: nominal rigidities; reference prices
JEL Codes: E30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nominal rigidities (D50) | economic analysis (O22) |
| reference prices (P22) | inertia in reference prices and costs (L11) |
| prices (P22) | costs (J30) |
| state dependence in reference prices (D11) | probability of changes in reference prices (E30) |
| state dependence in reference prices (D11) | magnitude of changes in reference prices (E30) |