State-dependent or time-dependent pricing
Subtitle: does it matter for recent U.S. inflation?
By: Peter J. Klenow, Oleksiy Kryvtsov.
Contributors: Kryvtsov, Oleksiy.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11043; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11043.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Inflation (Finance) -- United States -- Econometric models.; Prices -- United States -- Econometric models.
Description: "Inflation equals the product of two terms: an extensive margin (the fraction of items with price changes) and an intensive margin (the average size of those price changes).  The variance of inflation over time can be decomposed into contributions from each margin.  The extensive margin figures importantly in many state-dependent pricing models, whereas the intensive margin is the sole source of inflation changes in staggered time-dependent pricing models.  We use micro data collected by the U.S.  Bureau of Labor Statistics to decompose the variance of consumer price inflation from 1988 through 2003.  We find that around 95% of the variance of monthly inflation stems from fluctuations in the average size of price changes, i.e., the intensive margin.  When we calibrate a prominent state-dependent pricing model to match this empirical variance decomposition, the model's shock responses are very close to those in time-dependent pricing models"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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