Prices are sticky after all

Patrick Kehoe, Virgiliu Midrigan

    Research output: Contribution to journalArticle

    Abstract

    Economists have interpreted the evidence that prices change every four months as implying that sticky prices cannot be important for monetary transmission. Theory implies that this interpretation is correct if most price changes are regular, but not if a large fraction are temporary, as in the data. Since regular prices are much stickier than temporary ones, our models predict that the stickiness of the aggregate price level matches that in a standard Calvo model or a standard menu cost model in which micro-level prices change about once a year. In this sense, prices are sticky after all.

    Original languageEnglish (US)
    Pages (from-to)35-53
    Number of pages19
    JournalJournal of Monetary Economics
    Volume75
    DOIs
    StatePublished - Oct 2015

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    Keywords

    • Menu costs
    • Sales
    • Sticky prices

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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