NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Staggered Price Indexation

Martín Uribe

NBER Working Paper No. 27657
Issued in August 2020, Revised in August 2020
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

Empirical studies using micro data find that about two thirds of all product prices do not change in a given quarter. This evidence has been interpreted as indicating the absence of price indexation. Further, models of staggered price setting without indexation interpret all price changes as optimal. However, the empirical evidence is mute with regard to whether price changes are optimal or not. To reconcile the possibility of price indexation with the micro evidence on the frequency of price changes, I modify the Calvo sticky price model by allowing each period a fraction of randomly picked prices to change optimally, another fraction of randomly picked prices to change due to indexation, and the remaining prices to be constant. The paper presents five main findings: (1) with staggered price indexation the Phillips curve includes a state variable that carries information about all past inflation rates; (2) as the degree of staggered price indexation increases, the Phillips curve becomes flatter; (3) staggered indexation dampens the short-run effect of monetary policy on inflation and amplifies its effect on output; (4) fixing the probability of a price change to 33% per quarter (in accordance with the empirical evidence), a small-scale new-Keynesian model estimated on U.S. data yields a probability of indexation of 19% per quarter (and therefore a probability of an optimal price change of 14% per quarter); and (5) according to the estimated model, staggered indexation explains more than half of the observed persistence of inflation in the United States.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w27657

 
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