Quarterly Journal of Economics Vol. 125 No. 2 2010
Frequency of Price Adjustment and Pass-Through*
Abstract
We empirically document, using U.S. import prices, that on average goods with a high frequency of price adjustment have a long-run pass-through that is at least twice as high as that of low-frequency adjusters. We show theoretically that this relationship should follow because variable mark-ups that reduce longrun pass-through also reduce the curvature of the profit function when expressed as a function of cost shocks, making the firm less willing to adjust its price. We quantitatively evaluate a dynamic menu-cost model and show that the variable mark-up channel can generate significant variation in frequency, equivalent to 37% of the observed variation in the data. On the other hand, the standard workhorse model with constant elasticity of demand and Calvo or state-dependent pricing has difficulty matching the facts.
- DOI
- 10.1162/qjec.2010.125.2.675
- Volume
- 125
- Issue
- 2
- Pages
- 675-727
- Language
- en
- Sources
- crossref openalex bibtex:phds-export.bib