Firms tend to justify price increases as necessary to cover rising costs. However, standard models imply that firms not only adjust prices to cost increases, but also to changes in spending. We present a model where, instead, there is differential adjustment depending on the type of shock. The...

The real effects of monetary policy depend on price stickiness. Existing studies that measure aggregate stickiness using US consumer price index microdata hold the consumption basket fixed. This yields a lower level of stickiness in 2024 compared with 1978. We show instead that stickiness is...

How firms respond to uncertainty determines economic policy effectiveness. Using Brexit as a natural experiment, I document that flexible price-setters - those most responsive to monetary policy - paradoxically reduce adjustment more than sticky firms under uncertainty. This "curse of...

International trade flows show strong persistence over time. Standard static gravity models cannot rationalize this persistence and lack a micro-foundation for including lagged trade flows as a determinant of current trade. We develop a structural dynamic gravity framework in which persistence...

Sticky-price firms do not merely underreact to ambiguous competitor prices - they actively lean against them. Above an inflation threshold, signals clear and firms reverse to follow. Existing information-friction models restrict weights between zero and one, ruling out this negative...

Firms tend to justify price increases as necessary to cover rising costs. However, standard models imply that firms not only adjust prices to cost increases, but also to changes in spending. We present a model where, instead, there is differential adjustment depending on the type of shock. The...

We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010-2019, roughly a...

This paper presents a novel model comparison to examine the challenges posed by changes in carbon-intensive energy prices for monetary policy. The employed environmental monetary models have a detailed multi-sector structure. The comparison assesses the effects of both a temporary and a...

We develop a model to estimate price-adjustment behavior when prices are observed more frequently than key explanatory variables such as wage costs. We propose a mixed-frequency stochastic (S, s)-model that accommodates infrequently observed costs and allows for plant-, product-, and...

We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010-2019, roughly a...

In 1991 and 2008, Israel abolished the equivalents of 1¢ and 5¢ coins, respectively, effectively eliminating low-denomination coins and introducing rounding in cash transactions. When totals were rounded up, shoppers incurred a small rounding tax. Using detailed data on price endings and...

It is shown that staggered and sticky price adjustment is possible without ad hoc frictions, and without suspending full price flexibility. I consider an oligopoly with n price-setting firms which can strategically choose the timing of price decisions and thus the stage in a n-stage Stackelberg...

We develop a unified approach to studying cost-price dynamics in the cross-section of firms in order to jointly explain the time series of aggregate inflation and the frequency of price changes, both during normal times and inflation surges. A key novelty is the use of microdata on firms' prices...

This paper documents five stylised facts relating to price adjustment in the euro area, using various micro price datasets collected in a period with relatively low and stable inflation. First, price changes are infrequent in the core sectors. On average, 12% of consumer prices change each...

When and under what circumstances might people interpret a price increase as fair and acceptable is an important question in behavioral economics. We report the results of surveys we conducted in the US and Israel in 2020, a time when many prices increased following the spread of the COVID-19...

We test the predictions of the sticky information model using a survey dataset by comparing shoppers' accuracy in recalling the prices of regulated and comparable unregulated products. Because regulated product prices are capped, they are sold more than comparable unregulated products, while...

Using daily retail prices gathered through web scraping in Mexico, we analyse time- and state-dependent price setting rules as determinants of the duration of price spells, or the probability of price changes. Through the lens of a duration model, we find some evidence of state-dependent...

This paper uses a new survey approach to empirically characterize firm-level passthrough dynamics and explores them in a price-setting model. We directly elicit price pass-through of cost shocks in the field and survey experiments. We find gradual pass-through due to infrequent adjustments...