Individual Price Adjustment along the Extensive Margin
Chapter in NBER book NBER Macroeconomics Annual 2012, Volume 27 (2013), Daron Acemoglu, Jonathan Parker, and Michael Woodford, editors (p. 235 - 281)
Firms employ a rich variety of pricing strategies whose implications for aggregate price dynamics often diverge. This situation poses a challenge for macroeconomists interested in bridging micro and macro price stickiness. In responding to this challenge, we note that differences in macro price stickiness across pricing mechanisms can often be traced back to price changes that are either triggered or cancelled by shocks. We exploit observed micro price behavior to quantify the importance of this margin of adjustment for the response of inflation to shocks. Across a range of empirical exercises, we find strong evidence that changes in the timing of price adjustments contribute significantly to the flexibility of the aggregate price level.
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This paper was revised on June 1, 2012
Document Object Identifier (DOI): 10.1086/669179This chapter first appeared as NBER working paper w18213, Individual Price Adjustment along the Extensive Margin, Etienne Gagnon, David López-Salido, Nicolas Vincent
Commentary on this chapter:
Comment, Gita Gopinath
Comment, Anil K Kashyap
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