State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?

In the 1988-2004 microdata collected by the U.S. Bureau of Labor Statistics for the Consumer Price Index, price changes are frequent (every 4-7 months, depending on the treatment of sale prices) and large in absolute value (on the order of 10%). The size and timing of price changes vary considerably...

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Bibliographic Details
Published in:The Quarterly journal of economics 2008-08, Vol.123 (3), p.863-904
Main Authors: Klenow, Peter J., Kryvtsov, Oleksiy
Format: Article
Language:English
Subjects:
Average prices
Consumer Price Index
Economic models
Inflation
Inflation rates
Menu costs
Modeling
Price changes
Price increases
Price shocks
Pricing policies
Statistical variance
Studies
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Summary:In the 1988-2004 microdata collected by the U.S. Bureau of Labor Statistics for the Consumer Price Index, price changes are frequent (every 4-7 months, depending on the treatment of sale prices) and large in absolute value (on the order of 10%). The size and timing of price changes vary considerably for a given item, but the size and probability of a price change are unrelated to the time since the last price change. Movements in aggregate inflation reflect movements in the size of price changes rather than the fraction of items changing price, because of offsetting movements in the fraction of price increases and decreases. Neither leading time-dependent models (Taylor or Calvo) nor first-generation state-dependent models match all of these facts. Some second-generation state-dependent models, however, appear broadly consistent with the empirical patterns.
ISSN:0033-5533
1531-4650
DOI:10.1162/qjec.2008.123.3.863