In Search of Real Rigidities

Date Presented:

Abstract:

The closed and open economy literatures work on estimating real rigidities, but in parallel. We bring the two literatures together to shed light on this question. We use international price data and exchange rate shocks to evaluate the importance of real rigidities in price setting. We show that consistent with the presence of real rigidities the response of reset-price inflation to exchange rate shocks depicts significant persistence. Individual import prices, conditional on changing, respond to exchange rate shocks prior to the last price change.

Notes:

Presented at the NBER 25th Macroannual Conference, April 9-10, 2010.