Year: 2025
Type: report
Abstract: We develop a unified approach to studying cost-price dynamics in the cross-section of firms in order to jointly explain the time series of aggregate inflation and the frequency of price changes, both during normal times and inflation surges.A key novelty is the use of microdata on firms' prices and production costs to construct an empirical measure of price gaps-the deviation between a firm's listed and optimal price.Conditional on the path of aggregate cost shocks extracted from the data, a state-dependent pricing model with strategic complementarities accounts well for both the linear cost-price dynamics of the pre-pandemic period and the nonlinear increase in inflation and frequency of price adjustment that followed.
Source: Staff reports
DOI: 10.59576/sr.1195
Language: English
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4407632104