Heterogeneity in pricing behavior in hybrid DSGE-ABM macrodynamics - Supplementary Material

We developed a hybrid dynamic stochastic general equilibrium (DSGE)-agent-based model (ABM) to explore how pricing heterogeneity evolves within which firms periodically revise (and possibly switch) pricing strategies. Firms choose a pricing heuristic from a set of alternatives encompassing a cost-based heuristic with a standard markup, a cost-based heuristic with a quality-adjusted markup, and a heuristic of following competitors' pricing behavior.

For illustration, we employ a simulated method of moments to calibrate the model with quarterly data for the United States. The model qualitatively replicates several empirical facts about firms’ strategic pricing behavior, particularly with respect to the frequency and magnitude of price adjustments. Two key findings are price stickiness and persistent heterogeneity in pricing behavior, with no single pricing rule becoming dominant.