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Author: | Álvarez, L.J. Burriel, P. |
Title: | Micro-based estimates of heterogeneous pricing rules: The United States vs. The Euro area |
Journal: | Scandinavian Journal of Economics
2010 : VOL. 112:4 p. 697-722 |
Index terms: | pricing microeconomics USA Europe models companies monetary policy |
Language: | eng |
Abstract: | This article presents US and euro area estimates for a fully heterogeneous model, in which there is a continuum of companies setting prices with a constant probability of adjustment, which may differ from firm to firm. The estimated model accurately matches the empirical distribution function of individual price durations for the US and the euro area. Incorporating these micro based pricing rules into a DSGE model, it is found that nominal shocks have a greater real effect in the fully heterogeneous economy than in the standard Calvo model. One of the other findings is that nominal and real shocks bring about a reallocation of resources among sectors. Monetary policy is found to have a greater real impact in the euro area than in the United States. |
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