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Linking individual and aggregate price changes

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  • Ratfai, Attila
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    Abstract

    Standard macroeconomic forecasting indicators and techniques tend to perform poorly in predicting inflation in the short-run. The present paper shows that microeconomic price data placed in an empirical model rooted in (S,s) pricing theory convey extra information on inflation dynamics. The empirical model designed to capture the deviation between target and actual price, potentially applicable in other contexts where lumpy adjustment is prevalent, is applied to a unique, highly disaggregated panel data set of consumer prices. Fluctuations in the shape of the cross-sectional density of price deviations are found to contribute to short-run inflation in the sample. Asymmetry in the density particularly matters. Idiosyncratic pricing shocks appear to impact on the size rather than the direction of inflation fluctuations.

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    File URL: http://eprints.soton.ac.uk/33133/1/0035.pdf
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    Bibliographic Info

    Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0035.

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    Date of creation: 01 Jan 2000
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    Handle: RePEc:stn:sotoec:0035

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    Cited by:
    1. Dhyne, E. & Fuss, C. & Pesaran, H. & Sevestre, P., 2007. "Lumpy Price Adjustments, A Microeconometric Analysis," Cambridge Working Papers in Economics 0719, Faculty of Economics, University of Cambridge.
    2. Fabrizio Coricelli & Roman Horvath, 2008. "Price Setting And Market Structure: An Empirical Analysis Of Micro Data," William Davidson Institute Working Papers Series wp938, William Davidson Institute at the University of Michigan.
    3. Jan Babecký & Fabrizio Coricelli & Roman Horváth, 2009. "Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 102-127, June.
    4. Michal Franta & Branislav Saxa & Katerina Smidkova, 2007. "Inflation Persistence in New EU Member States: Is It Different Than in the Euro Area Members?," Working Papers 2007/10, Czech National Bank, Research Department.
    5. Fougere, Denis & Gautier, Erwan & Le Bihan, Herve, 2008. "Restaurant Prices And The Minimum Wage," Working Papers 44084, American Association of Wine Economists.
    6. Ian Babetskii & Fabrizio Coricelli & Roman Horvath, 2007. "Measuring and Explaining Inflation Persistence: Disaggregate Evidence on the Czech Republic," Working Papers 2007/1, Czech National Bank, Research Department.
    7. Erwan Gautier, 2009. "Les ajustements microéconomiques des prix : une synthèse des modèles théoriques et résultats empiriques," Revue d'économie politique, Dalloz, vol. 0(3), pages 323-372.
    8. Gautier, E. & Le Saout, R., 2012. "The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data," Working papers 375, Banque de France.
    9. Michal Franta & Branislav Saxa & Kateøina Šmídková, 2010. "The Role of Inflation Persistence in the Inflation Process in the New EU Member States," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 480-500, December.

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