EVIDENCE ON PRICE ADJUSTMENT COSTS IN U.S. MANUFACTURING INDUSTRY

This paper investigates the degree of rigidity in prices of manufactured products in the U.S., conditional on labor costs. I extend Rotemberg's model of quadratic price-adjustment costs and find that prices are costly to adjust: after a year, about 40 percent of adjustment remains to be completed for aggregate manufacturing, while for some industries the adjustment is twice as slow. But manufacturing prices are less sluggish than prices in the U.S. economy as a whole. Thus, nominal rigidity in other markets, such as those for services or labor, may be important.