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- 24 August 2009
- WORKING PAPER SERIES - No. 1083Evaluating microfoundations for aggregate price regidities: evidence from matched firm-level data on product prices and unit labor costDetails
- Using data on product-level prices matched to the producing firm's unit labour cost, we reject the hypothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Mackowiak and Wiederholt (2009) version of the Rational Inattention Model. Neither do we find that firms react strongly to predictable marginal cost changes, as expected from the Mankiw and Reis (2002) Sticky Information Model. We find that, in line with Staggered Contracts models, firms consider both the current and future expected marginal cost when setting prices with a sum of coefficients not significantly different from unity.
- JEL Code
- D8 : Microeconomics→Information, Knowledge, and Uncertainty
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
L1 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance
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