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.

Entrants and incumbents can create new products and displace the products of competitors. Incumbents can also improve their existing products. How much of aggregate productivity growth occurs through each of these channels? Using data from the U.S. Longitudinal Business Database on all nonfarm private businesses from 1983 to 2013, we arrive at three main conclusions: First, most growth appears to come from incumbents. We infer this from the modest employment share of entering firms (defined as those less than 5 years old). Second, most growth seems to occur through improvements of existing varieties rather than creation of brand new varieties. Third, own‐product improvements by incumbents appear to be more important than creative destruction. We infer this because the distribution of job creation and destruction has thinner tails than implied by a model with a dominant role for creative destruction.

Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet by Austan Goolsbee and Peter J. Klenow. Published in volume 96, issue 2, pages 108-113 of American Economic Review, May 2006

Large economies export more in absolute terms than do small economies. We use data on shipments by 126 exporting countries to 59 importing countries in 5,000 product categories to answer the question: How? Do big economies export larger quantities of each good (the intensive margin), a wider set of goods (the extensive margin), or higher-quality goods? We find that the extensive margin accounts for around 60 percent of the greater exports of larger economies. Within categories, richer countries export higher quantities at modestly higher prices. We compare these findings to some workhorse trade models. Models with Armington national product differentiation have no extensive margin, and incorrectly predict lower prices for the exports of larger economies. Models with Krugman firm-level product differentiation do feature a prominent extensive margin, but overpredict the rate at which variety responds to exporter size. Models with quality differentiation, meanwhile, can match the price facts. Finally, models with fixed costs of exporting to a given market might explain the tendency of larger economies to export a given product to more countries.

The semiconductor industry is often cited as a strategic industry in part because important learning spillovers may justify special industrial policies. Using quarterly, firm-level data on seven generations of dynamic random access memory semiconductors over 1974-92, the authors find that learning rates average 20 percent, firms learn three times more from an additional unit of their own cumulative production than from an additional unit of another firm's cumulative production, learning spills over just as much between firms in different countries as between firms within a given country, and intergenerational learning spillovers are weak.

Employment and hours are more cyclical than dictated by productivity and consumption. This intratemporal labor wedge can arise from product or labor market distortions. Based on employee wages, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because wages may be smoothed versions of labor's true cyclical price, we instead examine the self-employed and intermediate inputs, respectively. For recent decades in the United States, we find price markup movements are at least as cyclical as wage markup movements. Thus, countercyclical price markups deserve a central place in business-cycle research, alongside sticky wages and matching frictions.

Many business cycle models use a flat short-run Phillips curve, due to time-dependent pricing and strategic complementarities, to explain fluctuations in real output. But, in doing so, these models predict unrealistically high persistence and stability of US inflation in recent decades. We calculate “reset price inflation”—based on new prices chosen by the subsample of price changers—to dissect this discrepancy. We find that the models generate too much persistence and stability both in reset price inflation and in the way reset price inflation is converted into actual inflation. Our findings present a challenge to existing explanations for business cycles.

In 1960, 94 percent of doctors and lawyers were white men. By 2010, the fraction was just 62 percent. Similar changes in other highly‐skilled occupations have occurred throughout the U.S. economy during the last 50 years. Given that the innate talent for these professions is unlikely to have changed differently across groups, the change in the occupational distribution since 1960 suggests that a substantial pool of innately talented women and black men in 1960 were not pursuing their comparative advantage. We examine the effect on aggregate productivity of the convergence in the occupational distribution between 1960 and 2010 through the prism of a Roy model. Across our various specifications, between 20% and 40% of growth in aggregate market output per person can be explained by the improved allocation of talent.

Endogenous Variety and the Gains from Trade by Costas Arkolakis, Svetlana Demidova, Peter J. Klenow and Andres Rodriguez-Clare. Published in volume 98, issue 2, pages 444-50 of American Economic Review, May 2008

Growth has fallen in the U.S. amid a rise in firm concentration. Market share has shifted to low labour share firms, while within-firm labour shares have actually risen. We propose a theory linking these trends in which the driving force is falling overhead costs of spanning multiple products or a rising efficiency advantage of large firms. In response, the most efficient firms (with higher markups) spread into new product lines, thereby increasing concentration and generating a temporary burst of growth. Eventually, due to greater competition from efficient firms, within-firm markups and incentives to innovate fall. Thus our simple model can generate qualitative patterns in line with the observed trends.