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Price Stickiness in Emerging Economies: Empirical Evidence for Four Latin-American Countries

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  • Felipe Morandé Lavín
  • Mauricio Tejada

Abstract

In spite of vast theoretical developments on the issue of price stickiness in the context of macroeconomic models, papers assessing the empirical validity of such hypothesis using micro-data are scarce. Most of these few attempts have been done for developed economies. The few papers that focus on developing countries, in particular, on Latin America utilize different methodologies and data sets, making it difficult to compare and generalize the results. Thus, in an effort to fill this gap, the aim of this paper is to study price stickiness using more homogenous methodologies and data by estimating the duration of prices (and the frequency of price adjustments) and the price setting rule that is most relevant for four emerging Latin American economies: Brazil, Chile, Colombia, and Mexico. The results reveal that Chile and Colombia exhibit a greater degree of nominal rigidity and that there is a substantial amount of heterogeneity in the duration of prices across the different product categories comprising the CPI basket. Furthermore, it was found that state-dependent price setting rules tend to better explain the behavior of the data in the case of all four countries analyzed.

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Bibliographic Info

Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp286.

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Length: 41 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:udc:wpaper:wp286

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Web page: http://www.econ.uchile.cl/
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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
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  3. Dias, Daniel & Robalo Marques, Carlos & Santos Silva, João M. C., 2005. "Time or state dependent price setting rules? Evidence from Portuguese micro data," Working Paper Series 0511, European Central Bank.
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  10. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  11. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
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Cited by:
  1. Willems, Tim, 2013. "Analyzing the effects of US monetary policy shocks in dollarized countries," European Economic Review, Elsevier, vol. 61(C), pages 101-115.
  2. Alessandro Gobbi & Tim Willems, 2011. "Identifying US Monetary Policy Shocks through Sign Restrictions in Dollarized Countries," Tinbergen Institute Discussion Papers 11-145/2, Tinbergen Institute.
  3. Ahrens, Steffen & Sacht, Stephen, 2011. "Estimating a high-frequency New Keynesian Phillips curve," Economics Working Papers 2011,08, Christian-Albrechts-University of Kiel, Department of Economics.
  4. Tim Willems, 2011. "Using Dollarized Countries to Analyze the Effects of US Monetary Policy Shocks," 2011 Meeting Papers 200, Society for Economic Dynamics.
  5. Tim Willems, 2010. "What are the Effects of Monetary Policy Shocks? Evidence from Dollarized Countries," Tinbergen Institute Discussion Papers 10-099/2, Tinbergen Institute, revised 25 Mar 2013.

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