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Price setting under uncertainty about inflation

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  • Drenik, Andrés
  • Perez, Diego J.

Abstract

We analyze the manipulation of inflation statistics that occurred in Argentina starting in 2007 to test the relevance of informational frictions in price setting. We estimate that the manipulation of statistics was associated with a higher degree of price dispersion. This effect is analyzed in the context of a quantitative general equilibrium model in which firms use information about the inflation rate to set prices. Reporting inaccurate measures of the CPI entails significant welfare losses, especially in economies with volatile monetary policy.

Suggested Citation

  • Drenik, Andrés & Perez, Diego J., 2020. "Price setting under uncertainty about inflation," Journal of Monetary Economics, Elsevier, vol. 116(C), pages 23-38.
    • Handle: RePEc:eee:moneco:v:116:y:2020:i:c:p:23-38
    DOI: 10.1016/j.jmoneco.2019.10.004
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    Cited by:

    1. Isaac Baley & Laura Veldkamp, 2021. "Bayesian learning," Economics Working Papers 1797, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Zidong An & Salem Abo‐Zaid & Xuguang Simon Sheng, 2023. "Inattention and the impact of monetary policy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 623-643, June.

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    More about this item

    Keywords

    Price setting; Informational frictions; Social value of public information;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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