EconStor >
Federal Reserve Bank of Boston >
Working Paper Series, Federal Reserve Bank of Boston >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/55586
  
Title:In search of real rigidities PDF Logo
Authors:Gopinath, Gita
Itskhoki, Oleg
Issue Date:2010
Series/Report no.:Working paper series // Federal Reserve Bank of Boston 10-9
Abstract:The closed and open economy literatures both work on evaluating the role of real rigidities, but in parallel. This paper brings the two literatures together. We use international price data and exchange rate shocks to evaluate the importance of real rigidities in price setting. We show that, consistent with the presence of real rigidities, the response of reset-price inflation to exchange rate shocks exhibits significant persistence. Individual import prices, conditional on changing, respond to exchange rate shocks prior to the last price change. At the same time, aggregate reset-price inflation for imports, like that for consumer prices, exhibits little persistence. Competitor prices affect firm pricing, and exchange rate pass-through into import prices is greater in response to trade-weighted, as opposed to bilateral, exchange rate shocks. We quantitatively evaluate sticky-price models (Calvo and menu cost) with variable markups at the wholesale level and constant markups at the retail level, consistent with empirical evidence. Variable markups alone generate price sluggishness at the aggregate level, while they fall short of matching price persistence at the micro level. Finally, variable markups magnify the size of the contract multiplier, but their absolute effects are modest unless they are coupled with exogenous sources of persistence.
JEL:F1
F3
F4
Document Type:Working Paper
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

Files in This Item:
File Description SizeFormat
637062388.pdf479.97 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/55586

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.