Advanced Search
MyIDEAS: Login

Relative prices, the price level and inflation: Effects of asymmetric and sticky adjustment

Contents:

Author Info

  • Shruti Tripathi

    ()
    (Indira Gandhi Institute of Development Research)

  • Ashima Goyal

    ()
    (Indira Gandhi Institute of Development Research)

Abstract

The paper examines how relative price shocks can affect the price level and then inflation. Using Indian data we find: (i) price increases exceed price decreases. Aggregate inflation depends on the distribution of relative price changes-inflation rises when the distribution is skewed to the right, (ii) such distribution based measures of supply shocks perform better than traditional measures, such as prices of energy and food. They moderate the price puzzle, whereby a rise in policy rates increases inflation, and are significant in estimations of New Keynesian aggregate supply, (iii) an average Indian firm changes prices about once in a year; the estimated Calvo parameter implies half of Indian firms reset their prices in any period, and 66 percent of firms are forward looking in their price setting. The implication of these estimated real and nominal price rigidities for policy are drawn out.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.igidr.ac.in/pdf/publication/WP-2011-026.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2011-026.

as in new window
Length: 27 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:ind:igiwpp:2011-026

Contact details of provider:
Postal: Gen. A. K. Vaidya Marg, Goregaon (E), Mumbai 400065
Phone: (022) 840 0919/20/21
Fax: (022) 840 2752/2026
Email:
Web page: http://www.igidr.ac.in
More information through EDIRC

Related research

Keywords: WPI; NKPC; asymmetric; stickiness; size; frequency; inflation;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
  2. Ball, L. & Mankiw, N.G., 1992. "Asymmetric Price Adjustment and Economic Fluctuations," Harvard Institute of Economic Research Working Papers 1602, Harvard - Institute of Economic Research.
  3. S. Fabiana & M. Druant & I. Hernando & C. Kwapil & B. Landau & C. Loupias & F. Martins & T. Math� & R. Sabbatini & H. Stahl & A. Stokman, 2005. "The Pricing Behaviour of Firms in the Euro Area New Survey Evidence," DNB Working Papers 058, Netherlands Central Bank, Research Department.
  4. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
  5. Laurence Ball & N. Gregory Mankiw, 1995. "Relative-Price Changes as Aggregate Supply Shocks," NBER Working Papers 4168, National Bureau of Economic Research, Inc.
  6. Loungani, Prakash, 1986. "Oil Price Shocks and the Dispersion Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 536-39, August.
  7. Péter Gábriel & �dám Reiff, 2010. "Price setting in Hungary-a store-level analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 161-176.
  8. Gautier, E., 2006. "The Behaviour of Producer Prices: some Evidence from the French PPI Micro Data," Working papers 160, Banque de France.
  9. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  10. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  11. Mónica Dias & Daniel Dias & Pedro Duarte Neves, 2004. "Stylised Features of Price Setting Behaviour in Portugal: 1992-2001," Working Papers w200405, Banco de Portugal, Economics and Research Department.
  12. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  13. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
  14. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  15. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  16. Roman Horv�th, 2011. "The frequency and size of price changes: evidence from non-parametric estimations," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 4(2), pages 263-268, February.
  17. Eichenbaum, Martin, 1992. "'Interpreting the macroeconomic time series facts: The effects of monetary policy' : by Christopher Sims," European Economic Review, Elsevier, vol. 36(5), pages 1001-1011, June.
  18. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  19. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
  20. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  21. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  22. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Goyal, Ashima, 2012. "Propagation Mechanisms in Inflation: Governance as key," MPRA Paper 46360, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ind:igiwpp:2011-026. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamprasad M. Pujar).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.