In search of real rigidities
By: Gita Gopinath, Oleg Itskhoki
Contributors: Itskhoki, Oleg; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16065; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16065.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The closed and open economy literatures work on evaluating the role of real rigidities, but in parallel.  This paper brings the two literatures together.  We use international price data and exchange rate shocks to evaluate the importance of real rigidities in price setting.  We show that consistent with the presence of real rigidities the response of reset-price inflation to exchange rate shocks depicts significant persistence.  Individual import prices, conditional on changing, respond to exchange rate shocks prior to the last price change.  At the same time aggregate reset-price inflation for imports, like that for consumer prices, depicts little persistence.  Competitor prices affect firm pricing, and exchange rate pass-through into import prices is greater in response to trade-weighted as opposed to bilateral exchange rate shocks.  We quantitatively evaluate sticky price models (Calvo and menu cost) with variable markups at the wholesale level and constant markups at the retail level, consistent with empirical evidence.  Variable markups alone generate price sluggishness at the aggregate level, while they fall short of matching price persistence at the micro level.  Finally, variable markups magnify the size of the contract multiplier, but their absolute effects are modest unless they are coupled with exogenous sources of persistence"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/24/2010.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.