This paper analyzes the effects of monetary shocks in a DSGE model that allows for a general form of smoothly state-dependent pricing by firms. As in Dotsey, King, and Wolman (1999) and Caballero and Engel (2007), our setup is based on one fundamental property: firms are more likely to adjust...

This paper presents original evidence on price setting in the euro area at the individual level. We use micro data on consumer (CPI) and producer (PPI) prices, as well as survey information. Our main findings are: (i) prices in the euro area are sticky and more so than in the US; (ii) there is...

This paper reports the results of a survey carried out by the Banco de España on a sample of around 2000 Spanish firms to deepen the understanding of firms' price setting behaviour. The main findings may be summarised as follows. Most Spanish firms are price setters that use predominantly state...

In this paper, we show that a simple model of smoothly state-dependent pricing generates a distribution of price adjustments similar to that observed in microeconomic data, both for low and high inflation. Our setup is based on one fundamental assumption: price adjustment is more likely when it...

We examine the finite-sample performance of small versus large scale dynamic factor models. Our Monte Carlo analysis reveals that small scale factor models out-perform large scale models in factor estimation and forecasting for high levels of cross-correlation across the idiosyncratic errors of...

In this paper we propose a new real-time forecasting model for euro area GDP growth, D€STINY, which attempts to bridge the existing gap in the literature between large- and small-scale dynamic factor models. By adopting a disaggregated modelling approach, D€STINY uses most of the information...

Much has been written about why economists failed to predict the latest financial and real crisis. Reading the recent literature, it seems that the crisis was so obvious that economists must have been blind when looking at data not to see it coming. In this paper, we analyze whether such claims...

We develop a twofold analysis of how the information provided by several economic indicators can be used in Markov-switching dynamic factor models to identify the business cycle turning points. First, we compare the performance of a fully non-linear multivariate specification (one-step approach)...

We show that the single-index dynamic factor model developed by Aruoba and Diebold (Am Econ Rev, 100:20-24, 2010) to construct an index of US business cycle conditions is also very useful for forecasting US GDP growth in real time. In addition, we adapt the model to include survey data and...

We propose a Markov-switching dynamic factor model to construct an index of global business cycle conditions, for performing short-term forecasts of quarterly world GDP growth in real time and computing real-time business cycle probabilities. To overcome the real-time forecasting challenges, the...