Reconciling microeconomic and macroeconomic estimates of price stickiness

Cagliarini, Adam; Robinson, Tim; Tran, Allen

doi:10.1016/j.jmacro.2010.10.003

Cited by 9 publications

(18 citation statements)

References 25 publications

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“…Cagliarini et al. () demonstrate that sticky intermediate prices can reduce the reliance of dynamic stochastic general equilibrium models on (unrealistic) price indexation. Nakamura and Steinsson () show that, when combined with sticky intermediate prices, heterogeneity of price‐setting across sectors can serve as a powerful real rigidity; the more flexible sectors effectively wait for the stickier sectors.…”

Section: Introductionmentioning

confidence: 99%

Real Rigidities and Nominal Price Changes

Klenow

Willis

2016

Economica

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Real rigidities can help to generate persistent effects of monetary policy shocks. We analyse an industry equilibrium model with two types of real rigidities: a ‘micro’ real rigidity from a kinked demand curve, and a ‘macro’ real rigidity due to sticky intermediate prices. We estimate key model parameters using micro data from the US CPI, which features big movements in relative prices within and across sectors. The micro real rigidity necessitates large idiosyncratic shocks to productivity. The macro real rigidity does not entail such large idiosyncratic shocks, and is consistent with the volatility of sectoral TFP growth.

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Section: Introductionmentioning

confidence: 99%

Real Rigidities and Nominal Price Changes

Klenow

Willis

2016

Economica

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“…Building on Carvalho (2006), they show that heterogeneity of (Calvo) price rigidity across economic sectors can bias estimates of average price rigidity upwards and bias estimates of the slope of the aggregate NKPC toward zero. Cagliarini et al (2011) trace this bias to the presence of an additional error term in the aggregate NKPC resulting from sectoral heterogeneity.…”

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confidence: 96%

“…Cagliarini et al (2011) and Imbs et al (2011) discuss another type of misspecification due to aggregation bias. Building on Carvalho (2006), they show that heterogeneity of (Calvo) price rigidity across economic sectors can bias estimates of average price rigidity upwards and bias estimates of the slope of the aggregate NKPC toward zero.…”

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confidence: 99%

Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Mavroeidis

Plagborg‐Møller

Stock

2014

Journal of Economic Literature

295

250

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We review the main identification strategies and empirical evidence on the role of expectations in the new Keynesian Phillips curve, paying particular attention to the issue of weak identification. Our goal is to provide a clear understanding of the role of expectations that integrates across the different papers and specifications in the literature. We discuss the properties of the various limited-information econometric methods used in the literature and provide explanations of why they produce conflicting results. Using a common data set and a flexible empirical approach, we find that researchers are faced with substantial specification uncertainty, as different combinations of various a priori reasonable specification choices give rise to a vast set of point estimates. Moreover, given a specification, estimation is subject to considerable sampling uncertainty due to weak identification. We highlight the assumptions that seem to matter most for identification and the configuration of point estimates. We conclude that the literature has reached a limit on how much can be learned about the new Keynesian Phillips curve from aggregate macroeconomic time series. New identification approaches and new data sets are needed to reach an empirical consensus.

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“…28 The discrepancy between the microeconomic and macroeconomic estimates of the Calvo parameter a also occurs in various studies based on the US data (see, for example, Klenow & Kryvtsov, 2008;Nakamura & Steinsson, 2008). Cagliriani et al (2011) attribute this discrepancy to the presence of heterogeneity in pricing across sectors. produces a large disparity in the estimation of q, suggesting the presence of misspecification bias in the DE con case.…”

Section: (Iii) Trend Inflation and Persistencementioning

confidence: 99%

“…Cagliriani et al . () attribute this discrepancy to the presence of heterogeneity in pricing across sectors.…”

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confidence: 99%

Time‐Varying Trend Inflation and the New Keynesian Phillips Curve in Australia

Lie

Yadav

2017

Economic Record

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This paper investigates whether the persistence and the time‐varying nature of trend inflation can explain the persistence of inflation in Australia — that is, whether it can explain the apparent need for backward‐looking inflation term(s) in the new Keynesian Phillips curve (NKPC) estimated using Australian data. We derive and estimate an extended open‐economy NKPC equation, accounting explicitly for time‐varying trend inflation. Our preferred, best‐fitting estimates based on the closed‐form specification with two indexation lags indicate a significant degree of indexation to past inflation. Thus, in contrast to the result for the US economy, our estimates suggest that accounting for time variation in trend inflation in the NKPC cannot explain away the inertia in the Australian inflation data. The estimates suggest that lagged inflation and future expectations of inflation enter the NKPC with almost equal weights. Finally, notwithstanding the previous results, we find a marked decline in the role of the backward‐looking inflation terms since the adoption of an inflation‐targeting regime by the Reserve Bank in 1993.

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Reconciling microeconomic and macroeconomic estimates of price stickiness

Cited by 9 publications

References 25 publications

Real Rigidities and Nominal Price Changes

Real Rigidities and Nominal Price Changes

Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Time‐Varying Trend Inflation and the New Keynesian Phillips Curve in Australia

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