IDEAS home Printed from https://ideas.repec.org/p/ioe/doctra/395.html
   My bibliography  Save this paper

End of the line: Relative Price Variability and Inflation in a Fixed Price Regime

Author

Listed:
  • Rodrigo Cerda
  • Rolf Lüders

Abstract

We study the relation between inflation rate and relative price variability using data of prices on 23 disaggregated food items since 1960 to 2003 in Chile. The behavior of inflation rate is quite variable in that country during that time span and more interestingly, there are periods of time in which prices were determined (fixed) by the economic authorities. We find consistent evidence that a larger inflation rate causes a larger relative price variability and this effect is much larger in periods in which prices were fixed. We interpret that result as firms over-reacting to inflation when setting their relative prices if they assume that it is unlikely to reset their prices in the near future. That result holds even if we follow different econometric approaches and it holds for all the food products considered.

Suggested Citation

  • Rodrigo Cerda & Rolf Lüders, 2011. "End of the line: Relative Price Variability and Inflation in a Fixed Price Regime," Documentos de Trabajo 395, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:395
    as

    Download full text from publisher

    File URL: https://www.economia.uc.cl/docs/doctra/dt-395.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hwang, Chiun-Lin, 1989. "Optimal monetary policy in an open macroeconomic model with rational expectation," ISU General Staff Papers 1989010108000010197, Iowa State University, Department of Economics.
    2. Cho, Guedae & Kim, MinKyoung & Koo, Won W., 2003. "Relative Agricultural Price Changes In Different Time Horizons," 2003 Annual meeting, July 27-30, Montreal, Canada 22249, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Bierens, H.J. & Broersma, L., 1991. "The relation between unemployment and interest rate : some international evidence," Serie Research Memoranda 0112, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    4. Bennet T. McCallum, 1984. "A Linearized Version of Lucas's Neutrality Model," Canadian Journal of Economics, Canadian Economics Association, vol. 17(1), pages 138-145, February.
    5. Froyen, Richard T & Waud, Roger N, 1988. "Real Business Cycles and the Lucas Paradigm," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 183-201, April.
    6. Marfatia, Hardik A., 2015. "Monetary policy's time-varying impact on the US bond markets: Role of financial stress and risks," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 103-123.
    7. Bashar, Omar H.M.N., 2011. "On the permanent effect of an aggregate demand shock: Evidence from the G-7 countries," Economic Modelling, Elsevier, vol. 28(3), pages 1374-1382, May.
    8. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-682, August.
    9. Atahan Afsar; José Elías Gallegos; Richard Jaimes; Edgar Silgado Gómez & José Elías Gallegos & Richard Jaimes & Edgar Silgado Gómez, 2020. "Reconciling Empirics and Theory: The Behavioral Hybrid New Keynesian Model," Vniversitas Económica 18560, Universidad Javeriana - Bogotá.
    10. Atella, Vincenzo & Atzeni, Gianfranco Enrico & Belvisi, Pier Luigi, 2003. "Investment and exchange rate uncertainty," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 811-824, November.
    11. Kevin Lansing, 2009. "Time Varying U.S. Inflation Dynamics and the New Keynesian Phillips Curve," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 304-326, April.
    12. Ben S. Bernanke & Alan S. Blinder & Bennett T. McCallum, 2005. "Panel discussion I: what have we learned since October 1979?," Review, Federal Reserve Bank of St. Louis, vol. 87(Mar), pages 277-292.
    13. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    14. Cordelius Ilgmann & Martin Menner, 2011. "Negative nominal interest rates: history and current proposals," International Economics and Economic Policy, Springer, vol. 8(4), pages 383-405, December.
    15. Pierpaolo Benigno & Luca Antonio Ricci, 2011. "The Inflation-Output Trade-Off with Downward Wage Rigidities," American Economic Review, American Economic Association, vol. 101(4), pages 1436-1466, June.
    16. Arnold Lutz, 2000. "Α Model of Debt Deflation and the Phillips Curve: Implications for Business Cycles and the Balance Sheet Channel of Monetary Policy / Schulden-Deflation und die Phillips-Kurve: Implikationen für Konju," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 220(4), pages 385-399, August.
    17. Bordo, Michael D., 1986. "Explorations in monetary history: A survey of the literature," Explorations in Economic History, Elsevier, vol. 23(4), pages 339-415, October.
    18. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
    19. Christopher A. Sims, 2008. "Inflation expectations, uncertainty, the Phillips curve, and monetary policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    20. Kitchen, John & Orden, David, 1991. "Effects of Fiscal Policy on Agriculture and the Rural Economy," Staff Reports 278556, United States Department of Agriculture, Economic Research Service.

    More about this item

    Keywords

    Inflation; price dispersions;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ioe:doctra:395. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jaime Casassus (email available below). General contact details of provider: https://edirc.repec.org/data/iepuccl.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.