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We use novel and unique data to study the effect of price changes in the market for luxury and middle class homes. We find that luxury home sales respond less to price changes than the middle-class home sales; in the market for luxury homes, past prices affect current prices; luxury home prices persist; and prices of luxury homes are stickier than prices of middle-class homes. Recent macroeconomic models predict that housing markets can have counter-cyclical effect, if home prices are flexible. Our findings imply that home prices, especially luxury home prices, may not be flexible enough to generate such effect.

This paper systematically integrates microdata and macrodata analysis of price rigidity in mon-etary economics. We explore the mechanism of price-setting using survival based approaches in order to see what factors drive the observed price rigidity. We find significant effects of macroeconomic variables such as inflation and output, which should be purged off before cal-ibrating any macroeconomic models. The microdata findings are then used to estimate and simulate a heterogeneous price-setting model with a generalised Calvo goods sector and a gen-eralised Taylor service sector, which improves the performance in matching macrodata persistence.

Market frictions or market imperfections are diverse, broadly present in most markets, and affect most transactions in the economy. These market failures may prevent buyers and sellers from trading, even if they agree on a price. This means that the central assumption of perfectly competitive markets that markets clear fails to hold, and some buyers and sellers remain unmatched. Since the 1970s, a growing literature has emerged addressing the importance of market frictions in most markets of the economy, namely in the labor, product, and credit markets. Information asymmetries, transaction costs, heterogeneous preferences, and coordination failure are examples of sources of market imperfections. In labor markets, these frictions imply that firms possess some market power over their employees and that a one cent wage cut does not lead all workers to leave the firm. In product markets, a key ingredient for the sluggish price adjustment is coordination failure among firms. Firms respond incompletely to an aggregate shock because other firms have not yet responded. In turn, asymmetric information and costly contract enforcement provide the foundations of credit market frictions, and are used to explain credit rationing as a market equilibrium. In Chapter 1 we use matched employer-employee data and firm balance sheet data to investigate the importance of firm productivity and firm labor market power in explaining firm heterogeneity in wage formation. We use a linear regression model with one interacted high dimensional fixed effect to estimate 5-digit sector-specifc elasticity of output with respect to input factors directly from the production function. This allows us to derive firm specific price-cost mark-up and elasticity of labor supply. The results show that firms possess a considerable degree of product and labor market power. Furthermore, we find evidence that a firm's monopsony power negatively affects the earnings of its workers, and firm's total factor productivity is closely associated with higher earnings, ceteris paribus. We also find that firms use monopsony power for wage differentiation between male and female workers. Chapter 2 describes price setting behavior using a very rich dataset of producer prices collected for Portuguese frms. The Industrial Producer Prices Index dataset is comprised of monthly transaction prices collected for products defuned at a detailed level. We proceed with the analysis in two steps. First, we estimate a hazard function model for the probability of a price change with high dimensional fixed effects to extensively account for product and firm-specific time-invariant heterogeneity, splitting price changes between price decreases and price increases. Second, we estimate a peer-effects model to document how market competition affects firms' price setting rules. The results suggest that the likelihood of price adjustment depends on both idiosyncratic and sectoral conditions. Furthermore, when we fully account for heterogeneity, duration dependence is estimated to be positive in the case of both a price increase and price decrease. The results of the peer-effects model suggest that firms timidly respond to their competitors' price setting behavior. Chapter 3 examines the importance of credit demand and credit supply-related factors in explaining the evolution of credit granted to Portuguese small and medium-sized enterprises (SMEs). The results suggest that the interest rate is a strong driver of SMEs' demand for bank loans, as well as their internal financing capacity. On the other hand, credit supply mostly depends on firms' ability to generate cash-flows and reimburse their debt, and on the amount of collateral. The model was estimated for the period between 2010 and 2012. The results suggest that a considerable fraction of Portuguese SMEs were affected by credit rationing in this period.

In this paper I present the historical, theoretical and empirical background of DSGE models. I show that the fundament of these models lies in optimizing agents framework and argue which impulses fueled the development of DSGE models. I demonstrate the evolution of DSGE models with an accent on the role and effects of the monetary policy, using distinction between RBC models and New Keynesian models. I explain the paradigm shift from the RBC models to the New Keynesian models by pointing out the main pitfalls of the RBC models and showing how adding nominal rigidities to the otherwise standard RBC models enhances empirical properties of these models. I also discuss how nominal rigidities are modeled in New Keynesian DSGE models and what the pros and cons of different approaches are. Finally, I review the most important New Keynesian theories of nominal rigidities and some of the empirical evidence on price and wage rigidities

We offer the first direct evidence of an implicit contract in a goods market. The evidence we offer comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a substantial amount of written evidence of its implicit contract with its consumers—a very explicit form of an implicit contract. In general, observing implicit contracts directly is difficult because of their implicit nature. To overcome the difficulty, we adopt a narrative approach. Based on the analysis of a large number of historical documents obtained from the Coca-Cola Archives and other sources, we offer evidence of the Coca-Cola Company not only saying that it had an important implicit contract with its consumers, but also acting on it. This study makes an additional and unique contribution by exploring quality as a margin of adjustment available to Coca-Cola. We present evidence that the implicit contract included a promise not only of a constant nominal price but also a constant quality. We document the dedication to a 6.5oz serving of the "Secret Formula." Indeed, during a period of over 70 years, we find evidence of only a single case of true quality change. By studying the margin of adjustment the Coca-Cola Company chose in response to changes in market conditions, we demonstrate that the perceived costs of breaking the implicit contract were large. In addition, we are able to offer one piece of direct evidence on the magnitude of these costs by studying the events surrounding the failed introduction of the New Coke in 1985.

Cette thèse se compose de trois articles sur les politiques budgétaires et monétaires optimales. Dans le premier article, J'étudie la détermination conjointe de la politique budgétaire et monétaire optimale dans un cadre néo-keynésien avec les marchés du travail frictionnels, de la monnaie et avec distortion des taux d'imposition du revenu du travail. Dans le premier article, je trouve que lorsque le pouvoir de négociation des travailleurs est faible, la politique Ramsey-optimale appelle à un taux optimal d'inflation annuel significativement plus élevé, au-delà de 9.5%, qui est aussi très volatile, au-delà de 7.4%. Le gouvernement Ramsey utilise l'inflation pour induire des fluctuations efficaces dans les marchés du travail, malgré le fait que l'évolution des prix est coûteuse et malgré la présence de la fiscalité du travail variant dans le temps. Les résultats quantitatifs montrent clairement que le planificateur s'appuie plus fortement sur l'inflation, pas sur l'impôts, pour lisser les distorsions dans l'économie au cours du cycle économique. En effet, il ya un compromis tout à fait clair entre le taux optimal de l'inflation et sa volatilité et le taux d'impôt sur le revenu optimal et sa variabilité. Le plus faible est le degré de rigidité des prix, le plus élevé sont le taux d'inflation optimal et la volatilité de l'inflation et le plus faible sont le taux d'impôt optimal sur le revenu et la volatilité de l'impôt sur le revenu. Pour dix fois plus petit degré de rigidité des prix, le taux d'inflation optimal et sa volatilité augmentent remarquablement, plus de 58% et 10%, respectivement, et le taux d'impôt optimal sur le revenu et sa volatilité déclinent de façon spectaculaire. Ces résultats sont d'une grande importance étant donné que dans les modèles frictionnels du marché du travail sans politique budgétaire et monnaie, ou dans les Nouveaux cadres keynésien même avec un riche éventail de rigidités réelles et nominales et un minuscule degré de rigidité des prix, la stabilité des prix semble être l'objectif central de la politique monétaire optimale. En l'absence de politique budgétaire et la demande de monnaie, le taux d'inflation optimal tombe très proche de zéro, avec une volatilité environ 97 pour cent moins, compatible avec la littérature. Dans le deuxième article, je montre comment les résultats quantitatifs impliquent que le pouvoir de négociation des travailleurs et les coûts de l'aide sociale de règles monétaires sont liées négativement. Autrement dit, le plus faible est le pouvoir de négociation des travailleurs, le plus grand sont les coûts sociaux des règles de politique monétaire. Toutefois, dans un contraste saisissant par rapport à la littérature, les règles qui régissent à la production et à l'étroitesse du marché du travail entraînent des coûts de bien-être considérablement plus faible que la règle de ciblage de l'inflation. C'est en particulier le cas pour la règle qui répond à l'étroitesse du marché du travail. Les coûts de l'aide sociale aussi baisse remarquablement en augmentant la taille du coefficient de production dans les règles monétaires. Mes résultats indiquent qu'en augmentant le pouvoir de négociation du travailleur au niveau Hosios ou plus, les coûts de l'aide sociale des trois règles monétaires diminuent significativement et la réponse à la production ou à la étroitesse du marché du travail n'entraîne plus une baisse des coûts de bien-être moindre que la règle de ciblage de l'inflation, qui est en ligne avec la littérature existante. Dans le troisième article, je montre d'abord que la règle Friedman dans un modèle monétaire avec une contrainte de type cash-in-advance pour les entreprises n’est pas optimale lorsque le gouvernement pour financer ses dépenses a accès à des taxes à distorsion sur la consommation. Je soutiens donc que, la règle Friedman en présence de ces taxes à distorsion est optimale si nous supposons un modèle avec travaie raw-efficace où seule le travaie raw est soumis à la contrainte de type cash-in-advance et la fonction d'utilité est homothétique dans deux types de main-d'oeuvre et séparable dans la consommation. Lorsque la fonction de production présente des rendements constants à l'échelle, contrairement au modèle des produits de trésorerie de crédit que les prix de ces deux produits sont les mêmes, la règle Friedman est optimal même lorsque les taux de salaire sont différents. Si la fonction de production des rendements d'échelle croissant ou decroissant, pour avoir l'optimalité de la règle Friedman, les taux de salaire doivent être égales., This dissertation consists of three essays on optimal fiscal and monetary policies. In the first two essays, I consider New Keynesian frameworks with frictional labor markets, money and distortionary income tax rates. In the first one, I study the joint determination of optimal fiscal and monetary policy and the role of worker's bargaining power on this determination. In the second one, I study the effects of worker’s bargaining power on the welfare costs of three monetary policy rules, which are: inflation targeting and simple monetary rules that respond to output and labor market tightness, with and without interest-rate smoothing. In the third essay, I study the optimality of the Friedman rule in monetary economies where demand for money is motivated by firms, originated in a cash-in-advance constraint. In the first essay, I find that when the worker’s bargaining power is low, the Ramsey-optimal policy calls for a significantly high optimal annual rate of inflation, in excess of 9.5%, that is also highly volatile, in excess of 7.4%. The Ramsey government uses inflation to induce efficient fluctuations in labor markets, despite the fact that changing prices is costly and despite the presence of time-varying labor taxes. The quantitative results clearly show that the planner relies more heavily on inflation, not taxes, in smoothing distortions in the economy over the business cycle. Indeed, there is a quite clear trade-off between the optimal inflation rate and its volatility and the optimal income tax rate and its variability. The smaller is the degree of price stickiness, the higher are the optimal inflation rate and inflation volatility and the lower are the optimal income tax rate and income tax volatility. For a ten times smaller degree of price stickiness, the optimal rate of inflation and its volatility rise remarkably, over 58% and 10%, respectively, and the optimal income tax rate and its volatility decline dramatically. These results are significant given that in the frictional labor market models without fiscal policy and money, or in the Walrasian-based New Keynesian frameworks with even a rich array of real and nominal rigidities and for even a miniscule degree of price stickiness, price stability appears to be the central goal of optimal monetary policy. Absent fiscal policy and money demand frictions, optimal rate of inflation falls to very near zero, with a volatility about 97 percent lesser, consistent with the literature. In the second essay, I show how the quantitative results imply that worker's bargaining weight and welfare costs of monetary rules are related negatively. That is, the lower the bargaining power of workers, the larger the welfare losses of monetary rules. However, in a sharp contrast to the literature, the rules that respond to output and labor market tightness feature considerably lower welfare costs than the inflation targeting rule. This is specifically the case for the rule that responds to labor market tightness. The welfare costs also remarkably decline by increasing the size of the output coefficient in the monetary rules. My findings indicate that by raising the worker's bargaining power to the Hosios level and higher, welfare losses of the three monetary rules drop significantly and response to output or market tightness does not, anymore, imply lower welfare costs than the inflation targeting rule, which is in line with the existing literature. In the third essay, I first show that the Friedman rule in a monetary model with a cash-in-advance constraint for firms is not optimal when the government to finance its expenditures has access to distortionary taxes on consumption. I then argue that, the Friedman rule in the presence of these distorting taxes is optimal if we assume a model with raw-efficient labors where only the raw labor is subject to the cash-in-advance constraint and the utility function is homothetic in two types of labor and separable in consumption. Once the production function exhibits constant-returns-to-scale, unlike the cash-credit goods model that the prices of both goods are the same, the Friedman is optimal even when wage rates are different. If the production function has decreasing or increasing-returns-to-scale, then to have the optimality of the Friedman rule, wage rates should be equal.

Fiyat belirleme mekanizmasının nasıl işlediği makroekonominin en temel konularından biridir. Konjonktür dalgalanmalarının kaynakları ve aynı zamanda para politikasının ekonomi üzerindeki etkileri, fiyat değişimleri üzerinde gözlenebilir. Eğer fiyatlar yapışkansa (nominal şoklara yavaş tepki veriyorlarsa), merkez bankaları üretilen mal ve hizmetlerin reel miktarını etkileyebilirler. Fiyatların esnek olduğunu öngören Monetarizm ve Yeni Klasik makro ekonomi yaklaşımları aktif makroekonomik politikalara gerek olmadığını söylüyordu. Fiyatların ve ücretlerin katı olduğu varsayımı üzerine inşa edilmiş Yeni Keynesyen iktisat teorisine göre ise para nötr değildir ve parasal genişleme ekonomide reel sonuçlar üretir. Türkiye ekonomisi için hangi yaklaşımın geçerli olduğuna karar verebilmek için bu çalışmada fiyat katılıkları incelenmiştir. Ayrıca, ana harcama kalemleri bazında nominal fiyat değişimlerinin homojen dağılıp dağılmadıkları incelenmiş ve geometrik yoğunluk eğrileri, ortalaması medyanı, standart sapması elde edilmiştir. Bu amaçla Türkiye İstatistik Kurumu’ndan (TÜİK) temin edilen ve 2005:01-2014:12 dönemini kapsayan 331 maddenin fiyatı kullanılmıştır. Çalışmalar matlab ile hesaplanmıştır. Çalışmanın sonunda nominal fiyat katılıklarının düşük olduğu bulunmuştur., Price setting mechanism is one of the fundamental topics in macroeconomic theory. Causes of business cycles and effects of monetary policy on the economy can be observed with price changes. If prices are rigid (which causes slow response to the nominal shocks), central bank can influence the real quantity of produced goods and services. According to monetarism and new classical economic approaches, prices are flexible and there is no need for macroeconomic policies. On the other hand, New Keynesian economic theory is built on the assumption that prices and wages are sticky. Therefore, money is not neutral and monetary expansion results in real effects in an economy. In this paper we investigate the price rigidities in Turkey. Also, we investigate if the nominal changes are distributed homogeneously or not on the basis of main expenditure items and geometric density curves, average, median and standard deviation of price changes were obtained. For these purposes we used price of the 331 goods in 2005: 01-2014:12 period obtained from Turkey Statistical Institute (TUIK). The calculations are done by matlab. According to our results price rigidity is low in Turkey

International audience; The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers' questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and non-holiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.

Despite the significant decrease in housing prices during the collapse of the Japanese bubble in the first half of the 1990s, housing rents hardly changed at all. Why is it that housing rents do not change? Why are housing prices and housing rents not linked? In this paper, in order to address these questions, we conducted an alternative indicators for housing services in CPI. First, we found that the annual proportion of residential units whose rent changed was no more than about 5%. This is extremely low, representing 1/20 of the figure for the U.S. and 1/6 of the figure for Germany. The underlying reason for this high degree of rigidity is the specific circumstances of the Japanese housing market, where opportunities to change rents are inherently limited due to the fact that tenant turnover is low while the duration of rental contracts is two years. Even more important, however, is the fact that rents are not changed even when opportunities to change them arise such as tenant turnover or contract renewals, thereby significantly lowering the probability of rents changing. Based on analysis using the adjustment hazard function technique proposed by Caballero and Engel (2007)[3], we found that whether or not a given unit's rent was adjusted mostly did not depend on how much its current rent diverged from the market conditions. In addition, it has been pointed out that the high depreciation rate characteristic of the Japanese market is a problem. Addressing this problem is extremely important when it comes to estimating housing rent indexes., 基盤研究(S) = Grants-in-Aid for Scientific Research (S)

In spite of the United States' recovery, most Caribbean nations are still struggling in the aftermath of the 2007–08 global financial crisis. This paper examines this slow growth recovery through the analysis of how the Caribbean's growth relates to that of key drivers of the global economy. The paper explores whether the region's links with some important global partners could be behind the sluggish post-crisis recovery. The paper analyzes the economic growth of Caribbean countries as a function of the growth in key global partners and of country-specific characteristics. The findings attribute an important role to the European Union and the United States in the outcomes for the region, especially in services-oriented economies. The findings show that when these nations grow, or when they are in an expansionary cycle, the Caribbean's growth responds positively but less than proportionally. Consequently, the slow recovery in the Caribbean region is attributed to the persistent sluggishness in the European Union and the fact that the U.S. recovery is still nascent and not quite robust.

In this paper I use novel micro data underlying the Mexican CPI to establish stylized facts about prices in the Mexican economy. I then analyze the implications and consistency of the empirical results for the degree of monetary non-neutrality generated in both time and state-dependent pricing models. I find that the real effects of monetary shocks importantly depend on the type of nominal rigidity considered and on the treatment of sales in the statistics that are calibrated into the models.

The marketplace, along with its price system, is the single most important institution in a western-style free enterprise economy. The ability of prices to adjust to changes in supply and demand conditions enables the market to function efficiently and lies behind the magical invisible hand mechanism. To the behaviour of prices and in particular to the ability of prices to adjust to changes in market conditions, therefore, have fundamental implications for many key issues in many areas of both microeconomics as well as macroeconomics. It is, therefore, critical to study and understand whether there are barriers to price adjustments, what are the nature of these barriers, how the barriers lead to price rigidity, what are possible implications of these rigidities, etc. This introductory essay briefly summarizes the fourteen empirical studies of price rigidity that are included in this special issue.

The paper looks at problems associated with measuring the services of owner-occupied housing (OOH) in the Japanese CPI. The paper shows that alternative approaches to measuring the services of OOH lead to quite different measures of CPI inflation for Japan. The Japanese CPI uses a rental equivalence approach to measuring OOH services and uses an index of all paid rents to price these services. However, Japanese rents are very sticky and under these circumstances, it seems more appropriate to use an index of newly contracted rents to value the opportunity cost of using the services of owned dwelling units. The paper examines this issue. It also looks at the adequacy of the sampling approach used in the Japanese CPI and at the problems surrounding the treatment of depreciation in constructing constant quality indexes for paid rents in the Japanese CPI. Finally, hedonic regressions for the quality adjustment of rents are run on an extensive data set.

We examine how precisely one can reproduce the CPI constructed based on price surveys using scanner data. Specifically, we closely follow the procedure adopted by the Statistics Bureau of Japan when we sample outlets, products, and prices from our scanner data and aggregate them to construct a scanner data-based price index. We show that the following holds the key to precise replication of the CPI. First, the scanner databased index crucially depends on how often one replaces the products sampled. The scanner data index shows a substantial deviation from the actual CPI when one chooses a value for the parameter associated with product replacement such that replacement occurs frequently, but the deviation becomes much smaller if one picks a parameter value such that product replacement occurs only infrequently. Second, even when products are replaced only infrequently, the scanner data index differs significantly from the actual CPI in terms of volatility. The standard deviation of the scanner data-based monthly inflation rate is 1.54 percent, which is more than three times as large as that for actual CPI inflation. We decompose the difference in volatility between the two indexes into various factors, showing that it mainly stems from the difference in price rigidity for individual products. We propose a filtering technique to make individual prices in the scanner data stickier, thereby making scanner data-based inflation less volatile.

2012～2016年度科学研究費補助金[基盤研究(S)]「長期デフレの解明」(研究代表者 東京大学経済学研究科・渡辺努, 課題番号：24223003)

International audience

Doutoramento em Economia Esta dissertação apresenta evidência sobre a dimensão da rigidez de preços e salários em Portugal, bem como das suas principais fontes. A investigação teve por base duas bases de dados de nível microeconómico: um inquérito junto de empresas abrangendo os setores mais importantes e os Quadros de Pessoal do Ministério do Emprego. Em consonância com os resultados encontrados noutros países europeus, o comportamento de fixação de preços das empresas em Portugal varia substancialmente entre os setores e depende fortemente de características económicas. Em particular, o grau de rigidez dos preços - medida pela rapidez de reação dos preços a choques ou pela estratégia de revisão de preços - depende do mercado em que as empresas operam, do seu tipo de produto e de outras características como a intensidade da concorrência, a estrutura de custos ou o tipo de política de preços. Em contraste, a definição dos salários reflete em grande medida a configuração institucional do mercado de trabalho, que é tipicamente específica de cada país. Muitos fatores institucionais podem obstruir a afetação eficiente dos trabalhadores e dos postos de trabalho. Além do impacto sobre os fluxos decorrente de restrições quantitativas sobre o ajustamento no mercado de trabalho, disposições jurídicas que restringem as variações dos salários, tabelas salariais determinadas ao nível do setor, a existência de salários mínimos nacionais ou a prática generalizada de estender os acordos coletivos a trabalhadores e empregadores não subscritores têm igualmente um impacto importante na afetação. A evidência aponta no sentido das empresas mais fortemente afetadas por alterações nas tabelas salariais aumentarem as taxas de separação e diminuírem significativamente as taxas de contratação, levando a taxas de destruição de emprego consideráveis. Além da importância desta fonte de rigidez salarial, não devemos ignorar aquela que persiste como a principal fonte de rigidez dos salários em Portugal: a proibição de reduzir os salários base inscrita no Código do Trabalho. A evidência obtida revela que a disponibilidade de componentes de remuneração mais flexíveis que as empresas podem suspender ou cortar em períodos adversos (por exemplo, compensações variáveis por desempenho) pode contribuir para compensar, em parte, o impacto negativo da rigidez dos salários base sobre o emprego. This dissertation uncovered a number of results about the degree and sources of price and wage rigidities in Portugal. It used two unique micro level datasets: a firm-level survey covering the most important sectors and a large longitudinal matched employer-employee dataset. In line with the results found in other European countries, firms’ price setting behaviour in Portugal varies substantially across sectors and depends strongly on economic features. In particular, the degree of price rigidity – measured by the time lags of price reaction to shocks or the type of price reviewing strategy – depends on market, product, and firm characteristics, such as the intensity of competition, the cost structure of the firm or the type of pricing policy. In contrast, wage adjustment strategies are shaped to a great extent by the labour market institutional setting which is strongly country-specific. Many factors may obstruct the efficient allocation of workers and jobs. Aside from the impact on flows stemming from quantitative restrictions on labour market adjustment, legal provisions restricting wage adjustment, wage schedules determined at the sector level, national minimum wages or the widespread practice of extending collective agreements to non-subscriber workers and employers also have an important impact. The evidence shows that firms more strongly affected by changes in bargained wage floors increase separation rates and significantly decrease their hiring rates, leading to sizeable job destruction rates. However besides the importance of the upward nominal wage rigidity, we should not lose sight what is still the most important source of nominal wage rigidity in Portugal: the fact that labour legislation strictly forbids cuts in base wages. The evidence obtained reveals that the availability of more flexible compensation components (e.g. bonuses) that firms can freeze or cut in bad times contribute to partly offset the negative impact of base wage rigidities on employment.

International audience; In this study, we empirically examine the extent of price rigidity using a unique store-level time-series data set – consisting of (i) actual retail transaction prices, (ii) actual wholesale transaction prices which represent both the retailers’ costs and the prices received by manufacturers, and (iii) a measure of manufacturers’ costs – for 12 goods in two widely used consumer product categories. We simultaneously examine the extent of price rigidity for each of the 12 products at both, final goods and intermediate goods levels. We study two notions of price rigidity employed in the existing literature: (i) the frequency of price changes, and (ii) the response of prices to exogenous cost changes. We find that retail prices exhibit remarkable flexibility in terms of both notions of price rigidity, i.e., they change frequently and they seem to respond quickly and fully to cost changes. Furthermore, we find that retail prices respond not just to their direct costs, but also to the upstream manufacturers’ costs, which further reinforces the extent of the retail price flexibility. At the intermediate goods level of the market, in contrast, we find relatively more evidence of rigidity in the response of manufacturers prices to cost changes. This despite the fact that wholesale prices change frequently and therefore exhibit flexibility according to the first notion of price rigidity.

Using data from three sources (a laboratory experiment, a field study, and a large US supermarket chain), we document a surprising asymmetric behavior of 9-ending prices: they are more rigid upward, but not downward, in comparison to non 9-ending prices. The data from the lab experiment and the field study suggest that shoppers are less likely to notice higher prices when they end with 9, or price increases when the new prices end with 9, in comparison to other endings. The consumers' misperception seems to be caused by their use of 9-endings as a signal for low prices, which interferes with price information processing. The supermarket data suggest that retail price setters respond strategically to the consumer misperception by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, 9-ending prices exhibit asymmetric rigidity: they are more rigid than non 9-ending prices upward but not downward.

Standard sticky information pricing models successfully capture the sluggish movement of aggregate prices in response to monetary policy shocks but fail at matching the magnitude and frequency of price changes at the micro level. This paper shows that in a setting where firms choose when to acquire costly information about different types of shocks, strategic complementarities in pricing generate planning complementarities. This results in firms optimally updating their information about monetary policy shocks less frequently than about idiosyncratic shocks. When calibrated to match frequent and large price changes observed in micro pricing data, the model is still capable of producing substantial non-neutralities. In addition, I use the model consistent Phillips curve and data from the Survey of Professional Forecasters to estimate the frequency at which firms update their information about monetary policy shocks. I find that the frequency of updating was higher in the 1970s compared to subsequent decades and hence conclude that monetary policy in the U.S. was relatively less effective prior to the 1980s.

Standard sticky information pricing models successfully capture the sluggish movement of aggregate prices in response to monetary policy shocks but fail at matching the magnitude and frequency of price changes at the micro level. This paper shows that in a setting where firms choose when to acquire costly information about different types of shocks, strategic complementarities in pricing generate planning complementarities. This results in firms optimally updating their information about monetary policy shocks less frequently than about idiosyncratic shocks. When calibrated to match frequent and large price changes observed in micro pricing data, the model is still capable of producing substantial non-neutralities. In addition, I use the model consistent Phillips curve and data from the Survey of Professional Forecasters to estimate the frequency at which firms update their information about monetary policy shocks. I find that the frequency of updating was higher in the 1970s compared to subsequent decades and hence conclude that monetary policy in the U.S. was relatively less effective prior to the 1980s.

We thank three anonymous referees for thoughtful comments and suggestions which we found very constructive and helpful. We are particularly grateful to the editor, Al Klevorick, for his advice and painstaking guidance through the multiple revision process. We thank Robert Barsky, Susanto Basu, Benny Bental, Mark Bergen, Steve Cecchetti, Robert Chirinko, Alex Cukierman, Leif Danziger, Stanley Fischer, Ben Friedman, Zvi Hercowitz, Arye Hillman, Mark Hooker, Simon Gächter, Robert Gordon, Anil Kashyap, Robert King, Pete Klenow, Ed Knotek, Saul Lach, Jon Moen, Walter Oi, Will Roberds, Christina Romer, David Romer, Julio Rotemberg, Paul Rubin, Rob Saur, Matthew Shapiro, Avichai Snir, Robert Solow, Peter Temin, Ken West, Jon Willis, Janet Yellen, and Mor Zahavi for providing useful comments and suggestions on earlier versions of the paper. We thank also the seminar participants at Bar-Ilan University, Ben-Gurion University, European Central Bank, Emory University, University of Haifa, Hebrew University, ISET, University of Michigan, NBER, and Tel-Aviv University, as well as the participants of the 2008 Annual Conference of the European Association of Law and Economics at the University of Haifa for suggestions and advice. We also thank the Coca-Cola Company Archive employees and especially Phil Mooney, the Coca-Cola Company Historian and the Coca-Cola Company Archive Director, for helping us locate many of the materials used for this project and for patiently answering our questions, and Virginia Cain and Kathy Shoemaker, Emory University Archivists of the Special Collections, for helping us with the papers and correspondence material contained in the Robert W. Woodruff Collection at the Emory University Special Collection Library. Daniel Levy acknowledges financial support from the University Research Committee at Emory University and from Adar Foundation at the Department of Economics at Bar-Ilan University, and research assistance of Eleana Aguilar, Xia Liu, and the late Yihong Xia. Some parts of the manuscript were written at the Monetary Policy Research Division of the European Central Bank in Frankfurt, where Daniel Levy was a visiting scholar. He gratefully acknowledges the Bank's hospitality and research support. All errors are ours.

We show that multimarket contact facilitates tacit collusion in the US airline industry using two complementary approaches. First, we show that the more extensive is the overlap in the markets that the two firms serve, i) the more firms internalize the effect of their pricing decisions on the profit of their competitors by reducing the discrepancy in their prices, and ii) the greater the rigidity of prices over time. Next, we develop a flexible model of oligopolistic behavior, where conduct parameters are modeled as functions of multimarket contact. We find i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.

We compare predictions from a theoretical model based on the structure of the main outdoor retail market in Jerusalem with the results of an empirical analysis of price response to changes in cost. We find that firms without adjacent competition exhibit both upward and downward price rigidity, an outcome we ascribe to asymmetric information between the consumer and the firm. Given that previous studies have focused on downward price rigidities of firms with market power, our findings highlight the importance of accounting for transitory information asymmetries between the consumer and the firm when studying price rigidity.

In this paper, we analyze firms' pricing behavior using a full informative micro dataset that accounts for a large part of Italian firms. In our view, “the black boxes” to examine are the relations between price setting, market structure and spatial disparities. The paper aims to extend the empirical literature in several directions. A first goal of the research is to investigate the link between heterogeneity in price changes and spatial dependence. Besides, we compare the price dynamics among sectors, namely manufacturing vs. service. It is irrefutable that prices stickiness is linked to good market rigidities. Consequently, these issues have extremely important policy implications; for instance, the Monetary Authority considers the macro price indexes in order to determine the right policy to stabilize the economy and to improve social welfare. However, the Central Bank does not distinguish the likely aggregation bias source from the cross sector–region–country heterogeneities. Overall, the purpose of this paper is to provide an analysis of survey data that allows us to collect important aspects for Economic Policy analysis, which could not be drawn from analysis with “mesoeconomic” or aggregate data. Finally, we provide empirical evidence that price dynamic heterogeneity across geographical areas, as well as disparities across industries, are statistically significant in our microeconometric models. Indeed, the probability that industries in the backward areas change prices is 30% less than in more developed regions (Northeast). In addition, we find that sectoral diversity counts especially across goods and service industries, even if this outcome is not always robust across microeconometric specifications.

I document a large and time-varying dispersion in the yields posted on insured time deposits over 1997-2011. The yield dispersion uncovers the presence of monopoly power over a homogeneous nancial product that commercial banks have managed to consistently exploit throughout this period. Product dierentiation and market characteristics such as measures of market concentration and income and demographic characteristics of the geographically segmented deposit markets have played little role in the observed price dispersion. I build and estimate a structural asset pricing model with heterogeneous search cost investors to characterize the implied search cost distribution that rationalizes the observed price dispersion. I nd strong evidence for the presence of search costs on part of investors in this market. A large fraction of investors had high search costs ranging from 10 basis points to 20 basis points per sample of deposit oer. I further link the observed price dispersion with the price rigidity of the deposit yields and the asymmetric response to aggregate shocks within the theoretical framework of costly consumer search.

Due to the rapid development of private labels and their segmentation into quality levels, the question arises how they have an effect on price ridigity. There is also much discussion about the impact of private label development on wholesale prices. Based on the roughly availability of appropriate data, questions in regard to the wholesale price are fairly unanswered. This paper fills this research gap by applying two approaches to analyze retail pricing behavior on the basis of weekly scanner data including the wholesale price of a chain distributing in Canada. The results of two case studies indicate higher price rigidities for private labels, especially for premium private labels in the case of salad dressings. Price variability is rather explained by price promotions than changes in the wholesale price. Long-term contracts and stable wholesale prices might be the result of increasing power by retailers due to rising private labels market shares.

28 p. Erceg et al. (J Monet Econ 46:281-313, 2000) introduce sticky wages in a New-Keynesian general-equilibrium model. Alternatively, it is shown here how wage stickiness may bring unemployment fluctuations into a New-Keynesian model. Using a Bayesian econometric approach, both models are estimated with US quarterly data of the Great Moderation. Estimation results are similar in the two models and both provide a good empirical fit, with the crucial difference that our model delivers unemployment fluctuations. Thus, second-moment statistics of the US rate of unemployment are replicated reasonably well in our proposed New-Keynesian model with sticky wages. Demand-side shocks play a more important role than technology innovations or cost-push shock in explaining both output and unemployment fluctuations. In the welfare analysis, the cost of cyclical fluctuations during the Great Moderation is estimated at 0.60% of steady-state consumption. We thank Gabriel Pérez-Quirós, two anonymous referees, and Francisco Galera for comments and suggestions. Financial support through research projects ECO2008-02641, ECO2009-11151, SEJ2007-66592-C03-01/ECON and ECO2010-16970 from Ministerio de Ciencia e Innovación (Spain) is also acknowledged. The first author also thanks Fundación Ramón Areces (VII Concurso Investigación en Economía) for financial support.

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter exhibits also a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.

Due to the rapid development of private labels and their segmentation into quality levels the question arises how they have an effect on price rigidity. There is also much discussion about the impact of private label development on wholesale prices. Based on the roughly availability of appropriate data, questions in regard to the wholesale price are fairly unanswered. This paper fills this research gap by applying two approaches to analyze retail pricing behavior on the basis of weekly scanner data including the wholesale price of a chain distributing in Canada. The results of two case studies indicate higher price rigidities for private labels, especially for premium private labels in the case of salad dressings. Price variability is rather explained by price promotions than changes in the wholesale price. Long-term contracts and stable wholesale prices might be the result of increasing power by retailers due to rising private labels market shares.

Over the last decade or more micro price studies have proliferated. In this paper a survey of this literature reveals alternative theoretical explanations of sticky prices: (a) sellers review and change prices only at predetermined intervals (except under extraordinary circumstances), so that any price reaction appears only when that time arrives (referred to as “time dependent pricing”); or (b) prices are always reviewed after a shock or policy move (“state dependent pricing”), but may be altered only if the difference between the actual and the new target price is sufficient to warrant an adjustment. The empirical evidence is that prices take longer to change in developed countries than in developing economies. In addition, the frequency of price movements differs widely across goods and the timing of price changes is not synchronized across sellers.

The phenomenon of infrequent price changes has troubled economists for decades. Intuitively one feels that for most price-setters there exists a range of inaction, i.e. a substantial measure of the states of the world, within which they do not wish to modify prevailing prices. However, basic economics tells us that when marginal costs change it is rational to change prices, too. Economists wishing to maintain rationality of price-setters resorted to fixed price adjustment costs as an explanation for price rigidity. In this paper we propose an alternative explanation, without recourse to any sort of physical adjustment cost, by putting strategic interaction into the center-stage of our analysis. Price-making is treated as a repeated oligopoly game. The traditional analysis of these games cannot pinpoint any equilibrium as a reasonable "solution" of the strategic situation. Thus there is genuine strategic uncertainty, a situation where decision-makers are uncertain of the strategies of other decision-makers. Hesitation may lead to inaction. To model this situation we follow the style of agent-based models, by modelling firms that change their pricing strategies following an evolutionary algorithm. Our results are promising. In addition to reproducing the known negative relationship between price rigidity and the level of general inflation, our model exhibits several features observed in real data. Moreover, most prices fall into the theoretical "range" without explicitly building this property into strategies.

This paper presents the main findings of a survey conducted on a sample of Portuguese firms. The main aim was to identify some relevant characteristics about the dynamics of prices and wages in Portugal. The most important conclusions are: i) changes to wages are more synchronized than changes to prices; ii) most wages are defined using inflation as a yardstick, even though there are no formal rules; iii) the wages of most workers are defined in terms of sector-related collective agreements; iv) a considerable proportion of workers receive wages above those been agreed under the collective agreement; v) firms make frequent use of other mechanisms to cut payroll costs as a way of overcoming the restrictions imposed by downward nominal wage rigidity.

This paper uses a unique micro data set of price records underlying the Barbados retail price index between 1994 and 2008 to provide a detailed assessment of consumer price rigidity. The major aim is to calculate price durations and the patterns of price-setting across sectors. We also check whether price cuts are as frequent as increases, and whether there is specific downward nominal rigidity. We find that prices in Barbados tend to change relatively frequently, with between 50 and 80 percent of items in every category reporting a price change every month. While there are regular monthly price reductions as well as increases, the reductions are always smaller and fewer than the increases. The paper also reports no measurable impact of changes in the money supply or national inflation on the frequency of price changes.

We have studied on interrelationship between marketing structure and multi-stage pricing in case of pork, chicken and eggs. First, we suppose that farm prices are restricted by fixed rent, price rigidity, wholesale pricing, and cost of feed. Also, we estimated their effect. Second, we suppose that retail prices are restricted by fixed rent, wholesale pricing, and price rigidity. Next, we estimated their effect. Major findings are follows. 1. Transaction structure between farmers and wholesalers affects on pricing of farm commodities. 2. Consumer's information on quality of goods affects retail pricing. Also, for pork and chicken, customers market is created., 豚肉，鶏肉，鶏卵について，流通構造と段階別価格形成の相互関係について研究した。まず，農家販売価格が，固定収入，卸売価格，価格硬直性，飼料価格によって規定されていると想定した。そしてそれらの影響を計測した。次に，小売価格が固定収入，卸売価格，価格硬直性，によって規定されていると想定した。そしてそれらの影響を計測した。主要な結論は以下の通りである。1．農家と業者の取引構造が農家販発価格形成に影響している。2．消費者の有する商品の品質に関する情報が小売価格形成に影響する。豚肉と鶏肉の場合には，顧客市場が成立している。

This paper uses unpublished retailer-level microdata underlying UK consumer price indices to investigate price rigidity. Based on the conventional method, little rigidity is found in frequency of price change, since the implied price duration is only 5.5 months. However, it significantly underestimates the true duration (9.3 months) as suggested by cross-sectional method. Results also exhibit conspicuous heterogeneities in rigidity across sectors and shop types but weak difference across regions and time. The overall distribution of duration can be decomposed by sector into a decreasing component and a cyclical component with 4-month cycles. Both time and state dependent features exist in pricing. These findings support New Keynesian theories and enable a better calibration to improve the performances of macroeconomic models.

International audience; This introductory essay briefly summarizes the 11 empirical studies of price setting and price adjustment that are included in this special issue. The studies, which use data from several European countries, were conducted as part of the European Central Bank's Inflation Persistence Network.

In this paper, we analyze firms' pricing behavior using a full informative micro dataset that accounts for a large part of Italian firms. In our view, “the black boxes†to examine are the relations between price setting, market structure and spatial disparities. A first goal of the research is to investigate the link between asymmetries in price changes and spatial dependence. Besides, we compare the price dynamics among sectors, namely manufacturing vs. service. It is irrefutable that prices stickiness is linked to good market rigidities. Consequently, these issues have extremely important policy implications; for instance, the Monetary Authority considers the macro price indexes to determine the right policy to stabilize the economy and to improve social welfare. However, the Central Bank does not distinguish the likely aggregation bias source from the cross sector-region-country heterogeneities. On the other hand, the propagation mechanism of an adverse monetary policy impulse, following a cost-push shock, may induce considerable mortality for firms' survival, expressed by the entry/exit balance. Overall, the purpose of this paper is to provide an analysis of survey data that allows us to collect important aspects for Economic Policy analysis, which could not be drawn from analysis with “mesoeconomic†or aggregate data.

This paper uses unpublished retailer-level microdata underlying UK consumer price indices to investigate price rigidity. Based on the conventional method, little rigidity is found in frequency of price change, since the implied price duration is only 5.5 months. However, it significantly underestimates the true duration (9.3 months) as suggested by cross-sectional method. Results also exhibit conspicuous heterogeneities in rigidity across sectors and shop types but weak difference across regions and time. The overall distribution of duration can be decomposed by sector into a decreasing component and a cyclical component with 4-month cycles. Both time and state dependent features exist in pricing. These findings support New Keynesian theories and enable a better calibration to improve the performances of macroeconomic models.