A unified framework for using micro-data to compare dynamic time-dependent 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 1996-2009, and employ the pricing models in a simple macromodel. We find that the Generalized Taylor Economy generates a hump shaped inflation impulse response function, whilst the Generalized Calvo does not