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 1 2015

    Fingerprint

    Price changes
    Sticky prices
    Economists
    Stickiness
    Price level
    Monetary transmission
    Calvo model
    Menu costs
    Cost model

    Keywords

    • Menu costs
    • Sales
    • Sticky prices

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    Prices are sticky after all. / Kehoe, Patrick; Midrigan, Virgiliu.

    In: Journal of Monetary Economics, Vol. 75, 01.10.2015, p. 35-53.

    Research output: Contribution to journalArticle

    Kehoe, Patrick ; Midrigan, Virgiliu. / Prices are sticky after all. In: Journal of Monetary Economics. 2015 ; Vol. 75. pp. 35-53.
    @article{c23c4dd468a04858b950ab683325abd7,
    title = "Prices are sticky after all",
    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.",
    keywords = "Menu costs, Sales, Sticky prices",
    author = "Patrick Kehoe and Virgiliu Midrigan",
    year = "2015",
    month = "10",
    day = "1",
    doi = "10.1016/j.jmoneco.2014.12.004",
    language = "English (US)",
    volume = "75",
    pages = "35--53",
    journal = "Journal of Monetary Economics",
    issn = "0304-3932",
    publisher = "Elsevier",

    }

    TY - JOUR

    T1 - Prices are sticky after all

    AU - Kehoe, Patrick

    AU - Midrigan, Virgiliu

    PY - 2015/10/1

    Y1 - 2015/10/1

    N2 - 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.

    AB - 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.

    KW - Menu costs

    KW - Sales

    KW - Sticky prices

    UR - http://www.scopus.com/inward/record.url?scp=84943366522&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=84943366522&partnerID=8YFLogxK

    U2 - 10.1016/j.jmoneco.2014.12.004

    DO - 10.1016/j.jmoneco.2014.12.004

    M3 - Article

    VL - 75

    SP - 35

    EP - 53

    JO - Journal of Monetary Economics

    JF - Journal of Monetary Economics

    SN - 0304-3932

    ER -