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Micro-level Price Setting Behaviour in India: Evidence from Group and Sub-Group Level CPI-IW Data

Author

Listed:
  • Banerjee, Shesadri

    (Madras School of Development Studies)

  • Bhattacharya, Rudrani

    (National Institute of Public Finance and Policy)

Abstract

In the contemporary literature on macroeconomics, the mainstream frameworks for policy evaluation have recognized the significance of price rigidities emerging from the micro-level pricing behaviour of firms for explaining the short and medium run effects of monetary policy interventions. In this study, we evaluate stickiness in price adjustment for the aggregate Con-sumer Price Index for Industrial Workers (CPI-IW) and its major components in the context of Indian economy. Our findings broadly suggest greater monthly frequency of price changes and lower duration of price spell for food group, compared to non-food group. After control-ling for small price changes due to sector-specific idiosyncratic shocks, stickiness in price-adjustment increases drastically for food components, corroborating to the high inflation per-sistence observed in the food sector in India in the recent past. We also find evidence of ex-ogenous versus menu-cost driven pricing behaviour in India.

Suggested Citation

  • Banerjee, Shesadri & Bhattacharya, Rudrani, 2017. "Micro-level Price Setting Behaviour in India: Evidence from Group and Sub-Group Level CPI-IW Data," Working Papers 17/217, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:17/217
    Note: Working Paper 217, 2017
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    Cited by:

    1. Rao, M. Govinda, 2017. "Public Finance in India in the Context of India's Development," Working Papers 17/219, National Institute of Public Finance and Policy.
    2. Rao, M. Govinda, 2017. "The Effect of Intergovernmental Transfers on Public Services in India," Working Papers 17/218, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Price stickiness ; Time-dependent ; State-dependent ; Dip test ; Silverman test; In-dian economy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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