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Some Evidence on the Importance of Sticky Prices (2004)
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| Venue: | JOURNAL OF POLITICAL ECONOMY |
| Citations: | 725 - 15 self |
BibTeX
@ARTICLE{Bils04someevidence,
author = {Mark Bils and Peter J. Klenow},
title = {Some Evidence on the Importance of Sticky Prices},
journal = {JOURNAL OF POLITICAL ECONOMY},
year = {2004},
pages = {947--985}
}
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Abstract
We examine the frequency of price changes for 350 categories of goods and services covering about 70 % of consumer spending, based on unpublished data from the BLS for 1995 to 1997. Compared with previous studies we find much more frequent price changes, with half of goods' prices lasting less than 4.3 months. Even excluding the role of temporary price cuts (sales), we find that half of goods' prices last 5.5 months or less. The frequency of price changes differs dramatically across categories. We exploit this variation to ask how inflation for "flexible-price goods" (goods with frequent changes in individual prices) differs from inflation for "sticky-price goods" (those displaying infrequent price changes). Compared to the predictions of popular sticky price models, actual inflation rates are far more volatile and transient, particularly for sticky-price goods.
