Inflationary Expectations and Price Setting Behavior
AbstractThis paper tests for the existence of expectational effects in very disaggregate price equations. Price equations are estimated using monthly data for each of 40 products. The dynamic specification of the equations is also tested, including whether the equations should be specified in level form or in change form. Two expectational hypotheses are used, one in which expectations of the aggregate price level are a function of the past values of the price level and one in which expectations are rational. Under the first hypothesis the lag length is estimated along with the other parameters, and under the second hypothesis the lead length is estimated along with the other parameters. The results strongly support the hypothesis that aggregate price expectations affect individual pricing decisions. The results do not discriminate very well between the level and change forms of the price equation, although there is a slight edge for the level form. The lag and lead lengths are not estimated precisely, but in most cases the lag length is less than 30 months and the lead length is less than 5 months.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3102.
Date of creation: Sep 1989
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Other versions of this item:
- Fair, Ray C, 1993. "Inflationary Expectations and Price Setting Behavior," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 8-18, February.
- Ray C. Fair, 1989. "Inflationary Expectations and Price Setting Behavior," Cowles Foundation Discussion Papers 923, Cowles Foundation for Research in Economics, Yale University.
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- Donald W.K. Andrews & Ray C. Fair, 1989.
"Estimation of Polynomial Distributed Lags and Leads with End Point Constraints,"
NBER Technical Working Papers
0079, National Bureau of Economic Research, Inc.
- Andrews, Donald W. K. & Fair, Ray C., 1992. "Estimation of polynomial distributed lags and leads with end point constraints," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 123-139.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
- Fair, Ray C, 1993. "Testing the Rational Expectations Hypothesis in Macroeconometric Models," Oxford Economic Papers, Oxford University Press, vol. 45(2), pages 169-90, April.
- Andrews, Donald W. K. & Fair, Ray C., 1992.
"Estimation of polynomial distributed lags and leads with end point constraints,"
Journal of Econometrics,
Elsevier, vol. 53(1-3), pages 123-139.
- Donald W.K. Andrews & Ray C. Fair, 1989. "Estimation of Polynomial Distributed Lags and Leads with End Point Constraints," NBER Technical Working Papers 0079, National Bureau of Economic Research, Inc.
- Silvia Fabiani & Angela Gattulli & Roberto Sabbatini, 2003. "La rigidità dei prezzi in Italia," Moneta e Credito, Economia civile, vol. 56(223), pages 325-358.
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