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Title:Evaluating microfoundations for aggregate price rigidities: Evidence from matched firm-level data on product prices and unit labor cost PDF Logo
Authors:Carlsson, Mikael
Skans, Oskar Nordström
Issue Date:2011
Series/Report no.:Working paper // IFAU - Institute for Labour Market Policy Evaluation 2011:8
Abstract:Using data on product-level prices matched to the producing firm's unit labor cost, we reject the hyptothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Maćkowiak and Wiederholt (2009) version of the Rational inattention model. Neither do we find that firms react strongly to predictable marginal cost changes, as expected from the Mankiw and Reis (2002) Sticky information model. We find that, in line with Staggered contracts models, firms consider both the current and future expected marginal cost when setting prices with a sum of coefficients not significantly different from unity.
Subjects:Price Setting
Business Cycles
Information
Micro Data
JEL:D8
E3
L16
Document Type:Working Paper
Appears in Collections:Working Papers, IFAU - Institute for Evaluation of Labour Market and Education Policy

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