A Unified Framework for Using Micro-Data to Compare Dynamic Wage and Price Setting Models

This paper develops a statistical framework of steady-state identities which enable us to match the distributions of durations found in the micro-data to generalized Taylor and Calvo models of time-dependent pricing. We illustrate the approach with the UK micro CPI data for 2006-2009, and employ the pricing models in a simple macromodel. We find that the Generalized Taylor Economy generates a hump shaped response function, whilst the Generalized Calvo does not.