Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82380
Authors: 
Carvalho, Carlos
Dam, Niels Arne
Year of Publication: 
2010
Series/Report no.: 
Danmarks Nationalbank Working Papers 64
Abstract: 
We estimate a multi-sector sticky-price model for the U.S. economy in which the degree of price stickiness is allowed to vary across sectors. For this purpose, we use a specification that allows us to extract information about the underlying cross-sectional distribution from aggregate data. Identification is possible because sectors play different roles in determining the response of aggregate variables to shocks at different frequencies: sectors where prices are more sticky are relatively more important in determining the low-frequency response. Estimating the model using only aggregate data on nominal and real output, we find that the inferred distribution of price stickiness is strikingly similar to the empirical distribution constructed from the recent microeconomic evidence on price setting in the U.S. economy. We also provide macro-based estimates of the underlying distribution for ten other countries. Finally, we explore our Bayesian approach to combine the aggregate time-series data with the microeconomic information on the distribution of price rigidity. Our results show that allowing for this type of heterogeneity is critically important to understanding the joint dynamics of output and prices, and constitutes a step toward reconciling the extent of nominal price rigidity implied by aggregate data with the evidence from price micro data.
Subjects: 
heterogeneity
price stickiness
micro data
macro data
Bayesian estimation
JEL: 
E10
E30
Document Type: 
Working Paper

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