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Is Firm Pricing State or Time-Dependent? Evidence from US Manufacturing

Author

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  • Virgiliu Midrigan

    (Ohio State University)

Abstract
If firm pricing is state, rather than time-dependent, firms are more likely to change prices whenever aggregate and idiosyncratic shocks reinforce each other and trigger desired price changes in the same direction. The distribution of idiosyncratic shocks across adjusting firms therefore varies over time in response to economy-wide disturbances: in times of, say, monetary expansions, the fraction of adjusting firms that have negative idiosyncratic technology shocks should increase. Using measures of technology shocks derived from production function estimates for four-digit US manufacturing industries, we find that sectoral inflation rates are more responsive to negative, as opposed to positive technology disturbances in periods of higher economy-wide inflation, commodity price increases and expansionary monetary policy shocks. We argue, using a quantitative state-dependent sticky price model calibrated to match key features of the US micro-price data, that these results suggest that pricing is state-dependent in US manufacturing.

Suggested Citation

  • Virgiliu Midrigan, 2005. "Is Firm Pricing State or Time-Dependent? Evidence from US Manufacturing," Macroeconomics 0511005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0511005
    Note: Type of Document - pdf; pages: 43
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    Cited by:

    1. Nilsen Øivind A. & Pettersen Per Marius & Bratlie Joakim, 2018. "Time-Dependency in Producers’ Price Adjustments: Evidence from Micro Panel Data," Review of Economics, De Gruyter, vol. 69(2), pages 147-168, August.
    2. Guimaraes, Bernardo & Mazini, Andre & Prince, Diogo de, 2016. "Time-dependent or State-dependent Pricing? Evidence from Firms' Response to Inflation Shocks," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 36(1), March.
    3. Choi, Chi-Young & Choi, Horag, 2016. "The role of two frictions in geographic price dispersion: When market friction meets nominal rigidity," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 1-27.
    4. Demery, David, 2012. "State-dependent pricing and the non-neutrality of money," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 933-944.
    5. Bo E. Honoré & Daniel Kaufmann & Sarah Lein, 2012. "Asymmetries in Price‐Setting Behavior: New Microeconometric Evidence from Switzerland," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(s2), pages 211-236, December.
    6. Brent, Neiman, 2011. "A state-dependent model of intermediate goods pricing," Journal of International Economics, Elsevier, vol. 85(1), pages 1-13, September.
    7. Berger, David & Vavra, Joseph, 2018. "Dynamics of the U.S. price distribution," European Economic Review, Elsevier, vol. 103(C), pages 60-82.
    8. Chi-Young Choi, 2010. "Reconsidering the Relationship between Inflation and Relative Price Variability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 769-798, August.
    9. Kevin X. D. Huang & Jonathan L. Willis, 2018. "Sectoral Interactions and Monetary Policy under Costly Price Adjustments," Annals of Economics and Finance, Society for AEF, vol. 19(2), pages 337-374, November.
    10. Celio Feltrin & Bernardo Guimaraes, 2015. "Time-dependent or state-dependent pricing? Evidence from a large devaluation episode," Discussion Papers 1504, Centre for Macroeconomics (CFM).
    11. Jacopo Magnani & Aspen Gorry & Ryan Oprea, 2016. "Time and State Dependence in an Ss Decision Experiment," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 285-310, January.
    12. David Demery, 2010. "State-Dependent Pricing and the Non-Neutrality of Money," Bristol Economics Discussion Papers 10/615, School of Economics, University of Bristol, UK.
    13. Miguel Acosta-Henao & Laura Alfaro & Andrés Fernández, 2020. "Sticky Capital Controls," Working Papers Central Bank of Chile 877, Central Bank of Chile.
    14. Timo Henckel & Gordon Menzies & Peter Moffat & Daniel J. Zizzo, 2017. "Sticky Belief Adjustment: A Double Hurdle Model and Experimental Evidence," Working Paper Series 40, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    15. repec:fgv:eesptd:382 is not listed on IDEAS
    16. Vivian Malta & Rene Garcia & Carlos Carvalho & Marco Bonomo, 2015. "Persistent Monetary Non-neutrality in an Estimated Model with Menu Costs and Partially Costly Information," 2015 Meeting Papers 1339, Society for Economic Dynamics.
    17. Rene Garcia & Carlos Carvalho & Marco Bonomo, 2013. "Time- and State-Dependent Pricing: A Unified Framework," 2013 Meeting Papers 759, Society for Economic Dynamics.
    18. Guimaraes, Bernardo & Feltrin Jr, Celio, 2016. "Time-Dependent or State-Dependent Pricing? Evidence From a Large Devaluation," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 36(2), November.

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    More about this item

    Keywords

    state-dependent pricing; time-dependent pricing; technology shocks;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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