HeterogeneityinPriceRigidityEvidencefromaCaseStudy.PDFVIP

DANIEL LEVY SHANTANU DUTTA MARK BERGEN Heterogeneity in Price Rigidity: Evidence from a Case Study Using Microlevel Data We combine two data sets to study price rigidity. The first consists of weekly time series of retail, wholesale, and spot prices for twelve products. These time series contain two exogenous cost shocks. We find that prices exhibit more rigidity in response to the second shock than the first. The second data set consists of all pub- licly available information about the shocks. Content analysis of these information reveals that the first shock is larger and more per- sistent, and the market has more information on it than the second. We conclude, therefore, that prices are more flexible in response to cost shocks that are larger, that are more persistent, and on which market participants have more information. VARIATION IN PRICE RIGIDITY is an issue of considerable interest in macroeconomics because understanding its reasons may shed light on The authors thank two anonymous referees, and John Leahy and Alan Stockman, the discussants at the April 1997 NBER Monetary Economics Program Meeting and at the 1997 American Economic Associa- tion Meetings, respectively, for providing thoughtful comments and suggestions. They also thank the late Peter Aranson, Laurence Ball, Robert Barsky, Susanto Basu, Stephen Cecchetti, Robert Chirinko, Hashem Dezhbakhsh, Paul Geroski, Steve Hoch, James Holmes, Abel Jeuland, Anil Kashyap, Evan Ko