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Price Rigidity in Brazil: Evidence from CPI Micro Data

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  • Solange Gouvea
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    Abstract

    In this paper, I investigate the patterns of price adjustments in Brazil. I derive the main stylized facts describing the behavior of price setters directly from a large data set of the CPI price quotes spanning approximately ten years until 2006. I find that on average prices remain unchanged for 2.7 to 3.8 months, exhibiting, however, a large degree of product and sector heterogeneity. Data on the frequency and sign of price changes show that there is a strong symmetry between price increase and decrease. Conversely, as expected under a positive inflation environment, the magnitude of positive price changes compensates this effect. I also provide some insights on the determinants of the patterns of price adjustment. The average duration of price spells decreased when the economy was hit by a confidence shock before 2002 presidential elections. The inflation rate of 5.9 % in 2000, jumped to 7.7% in 2001 and hiked to 12.6 % in 2002. Results suggest that substantial disturbances to average inflation imposed a high enough cost of not adjusting prices and triggered more frequent price reviews.

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    File URL: http://www.bcb.gov.br/pec/wps/ingl/wps143.pdf
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    Bibliographic Info

    Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 143.

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    Date of creation: Sep 2007
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    Handle: RePEc:bcb:wpaper:143

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    Web page: http://www.bcb.gov.br/?english

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    8. Eduardo Lundberg, 2000. "Monetary Policy and Banking Supervision Functions on the Central Bank," Working Papers Series 2, Central Bank of Brazil, Research Department.
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    10. Sergio Afonso Lago Alves, 2001. "Evaluation of the Central Bank of Brazil Structural Model's Inflation Forecasts in an Inflation Targeting Framework," Working Papers Series 16, Central Bank of Brazil, Research Department.
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    20. Alan Cosme Rodrigues da Silva & Eduardo Facó Lemgruber & José Alberto Rebello Baranowski & Renato da Silva Carvalho, 2007. "Análise da Coerência de Medidas de Risco no Mercado Brasileiro de Ações e Desenvolvimento de uma Metodologia Híbrida para o Expected Shortfall," Working Papers Series 142, Central Bank of Brazil, Research Department.
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    24. Sergio A. L. Alves & Waldyr D. Areosa, 2005. "Targets and Inflation Dynamics," Working Papers Series 100, Central Bank of Brazil, Research Department.
    25. Marta Areosa & Waldyr Areosa, 2006. "The Inequality Channel of Monetary Transmission," Working Papers Series 114, Central Bank of Brazil, Research Department.
    26. Eui Jung Chang & Marcelo Kfoury Muinhos & Joanílio Rodolpho Teixeira, 2002. "Macroeconomic Coordination and Inflation Targeting in a Two-Country Model," Working Papers Series 50, Central Bank of Brazil, Research Department.
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    Cited by:
    1. Creamer, Kenneth & Rankin, Neil A., 2008. "Price setting in South Africa 2001-2007 - stylised facts using consumer price micro data," MPRA Paper 16905, University Library of Munich, Germany.
    2. Felipe Morandé Lavín & Mauricio Tejada, 2008. "Price Stickiness in Emerging Economies: Empirical Evidence for Four Latin-American Countries," Working Papers wp286, University of Chile, Department of Economics.

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