Shocks versus responsiveness: What drives time-varying dispersion?

Journal Article (Journal Article)

The dispersion of many economic variables is countercyclical. What drives this fact? Greater dispersion could arise from greater volatility of shocks or from agents responding more to shocks of constant size. Without data separately measuring exogenous shocks and endogenous responses, a theoretical debate between these explanations has emerged. In this paper, we provide novel identification using price data in the open-economy environment: using confidential BLS microdata, we document a robust positive relationship between exchange rate pass-through and the dispersion of item-level price changes. We then show that this relationship supports models with time-varying responsiveness.

Full Text

Duke Authors

Cited Authors

  • Berger, D; Vavra, J

Published Date

  • October 1, 2019

Published In

Volume / Issue

  • 127 / 5

Start / End Page

  • 2104 - 2142

Electronic International Standard Serial Number (EISSN)

  • 1537-534X

International Standard Serial Number (ISSN)

  • 0022-3808

Digital Object Identifier (DOI)

  • 10.1086/701790

Citation Source

  • Scopus