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Reference Prices and Nominal Rigidities

Author

Listed:
  • Sergio Rebelo

    (Northwestern University)

  • Nir Jaimovich

    (Stanford University)

  • Martin Eichenbaum

    (Northwestern University)

Abstract
We assess the importance of nominal rigidities using a new weekly scanner data set. We find that nominal rigidities are important but do not take the form of sticky prices. Instead, they take the form of inertia in reference prices and costs, defined as the most common prices and costs within a quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in the probability of reference price changes and in the magnitude of these changes. We us a simple macro model to argue that reference prices and costs are useful statistics for macroeconomic analysis.

Suggested Citation

  • Sergio Rebelo & Nir Jaimovich & Martin Eichenbaum, 2010. "Reference Prices and Nominal Rigidities," 2010 Meeting Papers 1049, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:1049
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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