NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Prices are Sticky After All

Patrick J. Kehoe, Virgiliu Midrigan

NBER Working Paper No. 16364
Issued in September 2010
NBER Program(s):   EFG   ME

Recent studies say prices change every four months. Economists have interpreted this high frequency as evidence against the importance of sticky prices for the monetary transmission mechanism. Theory implies that if most price changes are regular, as they are in the standard New Keynesian model, then this interpretation is correct. But, if most price changes are temporary, as they are in the data, then it is incorrect. Temporary changes have two striking features: after a change, the nominal price returns exactly to its pre-existing level, and temporary changes are clustered in time. Our model, which replicates these features, implies that temporary changes cannot offset monetary shocks well, whereas regular changes can. Since regular prices are much stickier than temporary ones, our model, in which prices change as frequently as they do in the micro data, predicts that the aggregate price level is as sticky as in a standard model in which micro level prices change once every 12 months. In this sense, prices are sticky after all.

download in pdf format
   (513 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16364

Published: Patrick Kehoe & Virgiliu Midrigan, 2015. "Prices are sticky after all," Journal of Monetary Economics, vol 75, pages 35-53. citation courtesy of

Users who downloaded this paper also downloaded* these:
Klenow and Malin w15826 Microeconomic Evidence on Price-Setting
Ball and Mankiw w4677 A Sticky-Price Manifesto
Christiano, Eichenbaum, and Trabandt w19265 Unemployment and Business Cycles
Eichenbaum, Jaimovich, and Rebelo w13829 Reference Prices and Nominal Rigidities
Chevalier and Kashyap w16680 Best Prices
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us