Why are Gasoline Prices Sticky? A Test of Alternative Models of Price Adjustment
نویسندگان
چکیده
Several macroeconomic models of business cycles rely on the assumption that rms adjust prices infrequently to generate the short-run non-neutrality of money documented by the literature on monetary transmission. These models posit di¤erent mechanisms to generate price stickiness, with correspondingly di¤erent implications for ination dynamics. While empirical implications regarding the response to macro shocks are indistinguishable on a time series of daily price changes, the models have distinct predictions on the dynamic patterns of price adjustment. In this paper, we use daily data on wholesale gasoline prices to test three explanations for price stickiness: menu-costs, information processing, and strategic interactions. Using an autoregressive conditional binomial (ACB) model, we show that both the past distribution of price changes and the lagged gap have signi cant explanatory power for the probability of a price change over and above the current price-cost gap. Our results have important implications regarding which of the three explanations (menu-costs, information processing, or strategic interactions) best ts the observed wholesale gasoline data. First, the signi cant e¤ect of the historic distribution of price changes leads us to reject menu-costs as an explanation for price stickiness. Instead, it suggests that strategic considerations play an important role in accounting for price stickiness. Additionally, we nd some evidence that costly information processing on the part of consumers may play a role in explaining price stickiness. . JEL Codes: E3, C22, D4. Keywords: sticky prices, price dynamics, discrete valued time series. 110 Marshall-Adams Hall, Department of Economics, Michigan State University, East Lansing, MI 48824; Douglas: [email protected]; Herrera (corresponding author): [email protected]. This paper was completed while Ana María Herrera was visiting Harvards Kennedy School of Government under a Repsol-YPF research fellowship. This paper has bene ted from discussions with numerous people, including seminar participants at Repsol-YPF Harvard Kennedy School Workshop, Emory University, the Federal Reserve Bank of Atlanta, and the 2006 Society for Nonlinear Dynamics and Econometrics Meetings. We especially thank Anthony Creane, Bill Hogan, Lutz Kilian, and Je¤rey Wooldridge for helpful comments, and Michael Davis and Jim Hamilton for sharing their data.
منابع مشابه
Sticky prices, inventories, and market power in wholesale gasoline markets
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