American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Reference Prices, Costs, and Nominal Rigidities
American Economic Review
vol. 101,
no. 1, February 2011
(pp. 234–62)
Abstract
We assess the importance of nominal rigidities using a new weekly scanner dataset. We find that nominal rigidities take the form of inertia in reference prices and costs, defined as the most common prices and costs within a given quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly once every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in prices. We use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis. (JEL L11, L25, L81)Citation
Eichenbaum, Martin, Nir Jaimovich, and Sergio Rebelo. 2011. "Reference Prices, Costs, and Nominal Rigidities." American Economic Review, 101 (1): 234–62. DOI: 10.1257/aer.101.1.234Additional Materials
JEL Classification
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 Firm Performance: Size, Diversification, and Scope
- L81 Retail and Wholesale Trade; e-Commerce