Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2014:6: Selection Effects in Producer-Price Setting

Mikael Carlsson ()
Additional contact information
Mikael Carlsson: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: We use micro data on product prices linked to information on the firms that set them to test for selection effects (state dependence) in micro-level producer pricing. In contrast to using synthetic data from a canonical menu-cost model, we fi…nd very weak, if any, micro-level selection effects when running price change probability regressions on actual data. Moreover, when fi…tting a model that nests both time- and state-dependent elements (the CalvoPlus model of Nakamura and Steinsson,2010) to the data, the resulting parameters mimic the standard Calvo (1983) model. Thus, upstream in the supply chain, price-setting is best characterized as time- dependent.

Keywords: Price-setting; Business Cycles; Micro Data

JEL-codes: D40; E30; L16

34 pages, August 19, 2014

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