The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper presents a model of staggered price setting that allows for a flexible distribution of the durations of the prices underlying aggregate price behavior, and estimates it with U.S. data. When tested against an unrestricted version of this model, standard models of sticky prices are rejected. In contrast, a stylized model that assumes a trimodal distribution of price durations—with clusters on the first, fourth, and eighth quarter after prices are set—easily passes the same test. In addition, this model is able to replicate the dynamic behavior of inflation and output found in the data.