Working Paper Series no. 353: Price Stickiness and Sectoral Inflation Persistence: Additional Evidence

Abstract

In this paper, using US as well as French sectoral data and indicators of price rigidity, we re-examine the (lack of) relation between price stickiness and inflation persistence. This has recently been put forward by Bils and Klenow (2004) as evidence against time-dependent price setting models. We obtain that, when filtering out sector-specific shocks along the lines of Boivin et al. (2009), and allowing for an alternative assumption on the marginal cost process, the case against the time-dependent Calvo model is substantially weakened.

Hervé Le Bihan and Julien Matheron
November 2011

Classification JEL : E31, E32

Keywords : Sticky prices, Heterogeneity, Inflation persistence