A0903
Title: Mixed Frequency data in a (S, s) pricing
Authors: Jonas Andersson - Norwegian School of Economics (Norway) [presenting]
Oivind A Nilsen - Norwegian School of Economics (Norway)
Hans J Skaug - University of Bergen (Norway)
Abstract: In empirical analyses, prices are most often observed with a larger frequency than the explanatory variables. We overcome the mixed frequency issue by specifying a model where producers' monthly prices are functions of their (latent) monthly marginal costs, which are related to observed annual wage costs. The intermittency of the price changes is modelled using a stochastic (S, s) technique. We find that the mean distance between the frictionless price and the existing price has to be 33\% before a price-adjustment process is initiated, which is smaller at the beginning of the year. The immediate pass-through of marginal costs to prices is approximately 0.30, i.e. significantly smaller than one, but larger in the long run. However, significant heterogeneity across sectors, firms and products is present. The analysis also shows that the intermittency blurs the picture when aggregating across time and/or firm/products. The rather low price-cost elasticity and the aggregation issue might have important implications for our understanding of the workhorse macro model, and in general, of sticky price models.
