Prices and unit labor costs: a new test of price stickiness
Abstract
This paper investigates the predictions of a simple optimizing model of nominal price rigidity for the dynamics of inflation. Taking as given the paths of nominal labor compensation and labor productivity to approximate the evolution of marginal costs, I determine the path of prices predicted by the solution of the firms’ optimal pricing problem. Model parameters are chosen to maximize the fit with the data. I find evidence of a significant...
Paper Details
Title
Prices and unit labor costs: a new test of price stickiness
Published Date
Mar 1, 2002
Volume
49
Issue
2
Pages
265 - 292
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