Price-Setting Behavior with Menu Costs – Experimental Evidence

60 Pages Posted: 13 Sep 2013

See all articles by Andreas Orland

Andreas Orland

Corvinus University of Budapest

Michael W. M. Roos

University of Dortmund - Lehrstuhl für Wirtschafts-un Sozialstatistik

Date Written: August 1, 2013

Abstract

We experimentally test the price-setting behavior of firms in the Rotemberg (1982) model in order to explain puzzles in the New Keynesian Phillips curve (NKPC). By constructing categories and a quantitative measure that compare behavior with optimum we find heterogeneous price-setting behavior by degree of information acquired about the future. Subjects rarely use past information, but overweight their own past price. We study the impact of heterogeneous price-setting behavior on estimated theoretically derived and hybrid Phillips curves. We find support for features of both NKPCs in our findings at the micro level. But the hybrid NKPC has a superior fit.

Keywords: Hybrid Phillips curve, experimental economics, behavioral macroeconomics

JEL Classification: C91, D92, E52

Suggested Citation

Orland, Andreas and Roos, Michael W. M., Price-Setting Behavior with Menu Costs – Experimental Evidence (August 1, 2013). Ruhr Economic Paper No. 439, Available at SSRN: https://ssrn.com/abstract=2325290 or http://dx.doi.org/10.2139/ssrn.2325290

Andreas Orland (Contact Author)

Corvinus University of Budapest ( email )

Hungary

Michael W. M. Roos

University of Dortmund - Lehrstuhl für Wirtschafts-un Sozialstatistik ( email )

D-44221 Dortmund
Germany

HOME PAGE: http://www.wiso.uni-dortmund.de/~gra-miro

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