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The Cross-Sectional Distribution of Price Stickiness Implied by Aggregate Data

Carlos Carvalho1; Niels Arne Dam2; Jae Won Lee3

1 PUC-Rio · 2 Finance Denmark · 3 University of Virginia

The Review of Economics and Statistics 2020

We provide evidence on three mechanisms that can reconcile frequent individual price changes with sluggish aggregate price dynamics. To that end, we estimate a semistructural model that can extract information about real rigidities and the distribution of price stickiness from aggregate data. Hence, the model can also speak to the debate about the aggregate implications of sales. Our estimates indicate large real rigidities and substantial heterogeneity in price stickiness. Moreover, the cross-sectional distribution of price stickiness implied by aggregate data is in line with an empirical distribution obtained from microprice data that factors out sales and product substitutions.

DOI
10.1162/rest_a_00811
Volume
102 (1)
Pages
162-179
Language
en
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