Events at CERGE-EI

Thursday, 27 May, 2021 | 16:00 | Macro Research Seminar | ONLINE

Katarína Borovičková, Ph.D. (New York University, USA) "Consistent Evidence on Duration Dependence in Price Changes"

Katarína Borovičková, Ph.D.

New York University, USA

The Zoom link for joining the seminar is:

Meeting ID: 964 3548 7202
Passcode: 042809

Bilateral talks are separately organized and will use a separate Zoom link (incl. password, only shared with the people that signed up).

Authors: Fernando Alvarez, Katarína Borovičková, and Robert Shimer

Abstract: We consider a discrete time mixed proportional hazard (MPH) model of duration. We prove that the baseline hazard and the frailty distribution of unobserved heterogeneity are nonparametrically identified using multiple-spell data, and use this to develop a GMM estimator of the baseline hazard. Our approach imposes no restrictions on the shape of the baseline hazard or the unobserved frailty distribution, allows for competing risks and spell-specific observable characteristics, and applies to right-censored data. The GMM specification is linear in the baseline hazard, which makes estimation and inference straightforward. We also develop tests of whether the MPH model is the data generating process. We apply our estimation procedure to the duration of price spells in weekly store data from IRI. Our setup allows us to integrate filters for sale prices into our statistical model. In contrast to most of the existing literature, we find substantial unobserved heterogeneity, accounting for a large fraction of the decrease in the Kaplan-Meier hazard over time. The baseline hazard of regular price changes is mostly flat except for a notable spike near one year duration.

Full Text: Consistent Evidence on Duration Dependence in Price Changes