Micro-based estimates of heterogeneous pricing rule : the United States vs. the Euro Area

This paper presents US and euro area estimates for a fully heterogeneous model, in which there is a continuum of fi rms setting prices with a constant probability of adjustment, which may differ from fi rm to fi rm. 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, we fi nd that nominal shocks have a greater real impact in the fully heterogeneous economy than in the standard Calvo model. We also fi nd 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