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Microdata analysis of price setting behaviour and macrodata analysis of heterogeneous DSGE models

Zhou, Peng 2012. Microdata analysis of price setting behaviour and macrodata analysis of heterogeneous DSGE models. PhD Thesis, Cardiff University.
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Abstract

This thesis investigates nominal frictions in price setting behaviour from both microe-conometric and macroeconometric perspectives. Chapter I and II use the unpublished retailer-level and producer-level microdata underlying CPI and PPI in the UK statisti-cal authority to study empirical price rigidity and price setting mechanisms. Based on the conventional frequency-based method, little rigidity is found since the implied price duration is less than half a year. However, this method is shown to significantly underestimate the true duration due to oversampling of short price spells. Alternative-ly, a trajectory-based cross-sectional approach is adopted, giving an unbiased and ro-bust estimate for average duration over 9 months (retailer price) and 15 months (pro-ducer price). That is to say, producer price has higher degree of rigidity than retailer price if cross-sectional approach is used. Both time-dependent and state-dependent features exist in price setting. In particular for retailer price, results also suggest con-spicuous heterogeneities in price rigidity across sectors and shop types, but weak dif-ference across regions and time. The overall hazard function of price change can be decomposed into a decreasing component from goods sectors and a 4-month cyclical component from services sectors. The empirical findings in the microdata not only contribute to the microdata literature on price setting behaviour, but also make possible the calibrations of macroeconomic DSGE model with heterogeneous price setting. Hence, based on the microdata find-ings in Chapter I and II, Chapter III uses Classical maximum likelihood and Bayesian inference to evaluate and estimate DSGE models with various price setting mecha-nisms. A vital problem with homogeneous price setting models is that they cannot generate enough persistence while keeping calibration of average price rigidity con-sistent with microdata evidence. In contrast, this ―persistence puzzle‖ is successfully resolved by heterogeneous price setting models, which greatly improve the dynamic performance of macroeconomic models.

Item Type: Thesis (PhD)
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Date of First Compliant Deposit: 30 March 2016
Last Modified: 04 Jun 2017 03:37
URI: http://orca.cf.ac.uk/id/eprint/23856

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