TY - JOUR AU - Eichenbaum,Martin AU - Jaimovich,Nir AU - Rebelo,Sergio TI - Reference Prices and Nominal Rigidities JF - National Bureau of Economic Research Working Paper Series VL - No. 13829 PY - 2008 Y2 - March 2008 UR - http://www.nber.org/papers/w13829 L1 - http://www.nber.org/papers/w13829.pdf N1 - Author contact info: Martin S. Eichenbaum Department of Economics Northwestern University 2003 Sheridan Road Evanston, IL 60208 Tel: 847/491-8232 Fax: 847/491-7001 E-Mail: eich@northwestern.edu Nir Jaimovich Department of Economics Duke University 213 Social Services Building Durham, NC 27708 Tel: 919/660-1864 E-Mail: njaimo@gmail.com Sergio Rebelo Northwestern University Kellogg School of Management Department of Finance Leverone Hall Evanston, IL 60208-2001 Tel: 847/467-2329 Fax: 847/491-5719 E-Mail: s-rebelo@northwestern.edu AB - 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 given 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 use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis. ER -