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dc.contributor.authorRAVN, Morten O.
dc.contributor.authorSCHMITT-GROHE, Stephanie
dc.contributor.authorURIBE, Martin
dc.date.accessioned2008-01-23T11:03:39Z
dc.date.available2008-01-23T11:03:39Z
dc.date.issued2008
dc.identifier.issn1725-6704
dc.identifier.urihttps://hdl.handle.net/1814/7863
dc.description.abstractA number of empirical studies document that marginal cost shocks are not fully passed through to prices at the firm level and that prices are substantially less volatile than costs. We show that in the relative-deep-habits model of Ravn, Schmitt-Grohé, and Uribe (2006), firm-specific marginal cost shocks are not fully passed through to product prices. That is, in response to a firm-specific increase in marginal costs, prices rise, but by less than marginal costs leading to a decline in the firm-specific markup of prices over marginal costs. Pass-through is predicted to be even lower when shocks to marginal costs are anticipated by firms. In our model unanticipated firm-specific cost shocks lead to incomplete pass-through (or a decline in markups) of about 20 percent and anticipated cost shocks are associated with incomplete pass-through of about 50 percent. The model predicts that cost pass-through is increasing in the persistence of marginal cost shocks and U-shaped in the strength of habits. The relative-deep-habits model implies that conditional on marginal cost disturbances, prices are less volatile than marginal costs.en
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.publisherEuropean University Institute
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2008/06en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.subjectD1en
dc.subjectD4en
dc.subjectL1en
dc.subjectDeep Habit formationen
dc.subjectMarkupsen
dc.subjectCost Pass-Throughen
dc.titleIncomplete Cost Pass-Through Under Deep Habitsen
dc.typeWorking Paperen
dc.neeo.contributorRAVN|Morten O.|aut|
dc.neeo.contributorSCHMITT-GROHÉ|Stephanie|aut|
dc.neeo.contributorURIBE|Martin|aut|
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