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Dynamics of Price Adjustments: Evidence From Micro Level Data for Chile

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  • Juan Pablo Medina
  • David Rappoport
  • Claudio Soto

Abstract

This paper characterizes the dynamics of price adjustments in Chile using data at the establishment level of goods in the CPI basket. Our results show that nominal rigidities are lower when measured at micro-level compared to estimates based on macro data. The frequency of price adjustments appears to be relatively stable over the sample period 1999-2005. On the other hand, if we decompose price adjustments in upward and downward changes, we observe that these frequencies of adjustments for some groups of products are correlated with the level of aggregate inflation. Thus, the data shows that the intensive and extensive margins of price adjustment play a role in determining price dynamics. Finally, we find a considerable degree of synchronization in price adjustments across establishments and a moderate increase in price dispersion since 1999

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 432.

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Date of creation: Oct 2007
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Handle: RePEc:chb:bcchwp:432

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  1. Aucremanne, Luc & Dhyne, Emmanuel, 2004. "How frequently do prices change? Evidence based on the micro data underlying the Belgian CPI," Working Paper Series 0331, European Central Bank.
  2. David Altig & Lawrence J. Christiano & Martin Eichenbaum & Jesper Linde, 2004. "Firm-specific capital, nominal rigidities and the business cycle," Working Paper Series, Federal Reserve Bank of Chicago WP-05-01, Federal Reserve Bank of Chicago.
  3. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 171-199.
  4. Etienne Gagnon, 2009. "Price Setting During Low and High Inflation: Evidence from Mexico," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 124(3), pages 1221-1263, August.
  5. Eyal Baharad & Benjamin Eden, 2003. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Vanderbilt University Department of Economics Working Papers 0321, Vanderbilt University Department of Economics.
  6. Caballero, Ricardo J. & Engel, Eduardo M. R. A., 1993. "Microeconomic rigidities and aggregate price dynamics," European Economic Review, Elsevier, vol. 37(4), pages 697-711, May.
  7. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  9. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(5), pages 947-985, October.
  10. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Online Appendix to "Firm-Specific Capital, Nominal Rigidities and the Business Cycle"," Technical Appendices 09-191, Review of Economic Dynamics.
  11. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  12. Ricardo J. Caballero & Eduardo M.R.A. Engel, 2003. "Adjustment Is Much Slower Than You Think," Working Papers, Economic Growth Center, Yale University 865, Economic Growth Center, Yale University.
  13. Rodrigo Caputo & Felipe Liendo & Juan Pablo Medina, 2007. "New Keynesian Models for Chile in the Inflation-Targeting Period," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 13, pages 507-546 Central Bank of Chile.
  14. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
  15. Luis J. Álvarez & Ignacio Hernando, 2004. "Price setting behaviour in Spain: stylised facts using consumer price micro data," Banco de Espa�a Working Papers 0422, Banco de Espa�a.
  16. Fisher, Timothy C. G. & Konieczny, Jerzy D., 2000. "Synchronization of price changes by multiproduct firms: evidence from Canadian newspaper prices," Economics Letters, Elsevier, vol. 68(3), pages 271-277, September.
  17. Midrigan, Virgiliu, 2006. "Menu costs, multi-product firms, and aggregate fluctuations," CFS Working Paper Series 2007/13, Center for Financial Studies (CFS).
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Cited by:
  1. Gastón Chaumont & Miguel Fuentes & Felipe Labbé & Alberto Naudon, 2011. "Dinámica de Precios en Chile: Evidencia con datos de Supermercados," Working Papers Central Bank of Chile, Central Bank of Chile 642, Central Bank of Chile.
  2. M. Utku Ozmen & Orhun Sevinc, 2011. "Price Rigidity In Turkey : Evidence From Micro Data," Working Papers 1125, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Gastón Chaumont & Miguel Fuentes & Felipe Labbé & Alberto Naudon, 2011. "A Reassessment of Flexible Price Evidence Using Scanner Data: Evidence from an Emerging Economy," Working Papers Central Bank of Chile, Central Bank of Chile 641, Central Bank of Chile.
  4. Peter J. Klenow & Benjamin A. Malin, 2010. "Microeconomic Evidence on Price-Setting," NBER Working Papers 15826, National Bureau of Economic Research, Inc.

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