PRICE ADJUSTMENTS IN A GENERAL MODEL OF STATE-DEPENDENT.pdfVIP

PRICE ADJUSTMENTS IN A GENERAL 2008 MODEL OF STATE-DEPENDENT PRICING James Costain and Antón Nákov Documentos de Trabajo N.º 0824 PRICE ADJUSTMENTS IN A GENERAL MODEL OF STATE-DEPENDENT PRICING PRICE ADJUSTMENTS IN A GENERAL MODEL OF STATE-DEPENDENT PRICING(*) James Costain and Antón Nákov BANCO DE ESPAÑA (*) We wish to thank Michael Reiter, Virgiliu Midrigan, and seminar participants at the Vienna Institute for Advanced Studies, the Bank of Spain, the 2008 SNDE meetings and the REDg-DGEM workshop, for helpful comments. We especially thank Virgiliu Midrigan, Etienne Gagnon, and Oleksiy Kryvstov for providing their data. The views expressed in this paper are those of the authors. Documentos de Trabajo. N.º 0824 2008 The Working Paper Series seeks to disseminate original research in economics and finance. All papers have been anonymously refereed. By publishing these papers, the Banco de España aims to contribute to economic analysis and, in particular, to knowledge of the Spanish economy and its international environment. The opinions and analyses in the Working Paper Series are the responsibility of the authors and, therefore, do not necessarily coincide with those of the Banco de España or the Eurosystem. The Banco de España disseminates its main reports and most of its publications via the INTERNET at the following website: http://www.bde.es . Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. © BANCO DE ESPAÑA, Madrid, 2008 ISSN: 0213-2710 (print) ISSN: 1579-8666 (on line) Depósito legal: Unidad de Publicaciones, Banco de España Abstract In this paper, we show that a simple model of smoothly state-dependent pricing generates a distribution of price adjustments similar to that observed