TD n. 634 2018

Niels A. Dam, Jae Won Lee, Carlos Viana de Carvalho.

This paper provides evidence on three mechanisms that can reconcile frequent individual price changes with sluggish aggregate price dynamics. To that end, we estimate a semi-structural model that allows us to extract information about real rigidities and cross-sectional heterogeneity in price stickiness from aggregate data. Hence the model can also speak to the debate about the aggregate implications of sales and other temporary price changes. Our estimates point to the presence of large real rigidities and a significant degree of heterogeneity in price stickiness. Moreover, the cross-sectional distribution of price stickiness implied by aggregate data is in line with an empirical distribution obtained from micro price data that factors out sales and product substitutions. Our results suggest that all three feaures -- i) real rigidities, ii) heterogeneity in price stickiness and iii) exclusion of temporary price changes -- help bridge the gap between micro and macro evidence on nominal price rigidity.

Revisto em Abril de 2018