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Dynamics of Price Adjustments: Evidence From Micro Level Data For Chile

  • Juan Pablo Medina G.
  • David Rappoport W.
  • Claudio Soto G.

This paper characterizes the dynamics of price adjustments in Chile using data at the establishment level of goods in the CPI basket. Our results show that nominal rigidities are lower when measured at micro-level compared to estimates based on macro data. The frequency of price adjustments appears to be relatively stable over the sample period 1999-2005. On the other hand, if we decompose price adjustments in upward and downward changes, we observe that these frequencies of adjustments for some groups of products are correlated with the level of aggregate inflation. Thus, the data shows that the intensive and extensive margins of price adjustment play a role in determining price dynamics. Finally, we find a considerable degree of synchronization in price adjustments across establishments and a moderate increase in price dispersion since 1999.

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File URL: http://www.bcentral.cl/eng/studies/economia-chilena/2007/ago/v10n2ago2007pp5-26.pdf
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Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 10 (2007)
Issue (Month): 2 (August)
Pages: 5-26

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Handle: RePEc:chb:bcchec:v:10:y:2007:i:2:p:5-26
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  1. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  2. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
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  4. Rodrigo Caputo & Felipe Liendo & Juan Pablo Medina, 2007. "New Keynesian Models for Chile in the Inflation-Targeting Period," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 13, pages 507-546 Central Bank of Chile.
  5. Altig, David E & Christiano, Lawrence J. & Eichenbaum, Martin & Lindé, Jesper, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," CEPR Discussion Papers 4858, C.E.P.R. Discussion Papers.
  6. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Rigidities and Aggregate Price Dynamics," NBER Working Papers 4162, National Bureau of Economic Research, Inc.
  7. Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers 896, Board of Governors of the Federal Reserve System (U.S.).
  8. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
  9. Mikhail Golosov & Robert E. Lucas, 2003. "Menu Costs and Phillips Curves," NBER Working Papers 10187, National Bureau of Economic Research, Inc.
  10. Álvarez, Luis J. & Hernando, Ignacio, 2004. "Price setting behaviour in Spain: stylised facts using consumer price micro data," Working Paper Series 0416, European Central Bank.
  11. Ricardo J. Caballero & Eduardo Engel, 2003. "Adjustment is Much Slower than You Think," NBER Working Papers 9898, National Bureau of Economic Research, Inc.
  12. Eyal Baharad & Benjamin Eden, 2004. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 613-641, July.
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  14. Midrigan, Virgiliu, 2006. "Menu costs, multi-product firms, and aggregate fluctuations," CFS Working Paper Series 2007/13, Center for Financial Studies (CFS).
  15. repec:nbr:nberre:0126 is not listed on IDEAS
  16. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  17. Fisher, Timothy C. G. & Konieczny, Jerzy D., 2000. "Synchronization of price changes by multiproduct firms: evidence from Canadian newspaper prices," Economics Letters, Elsevier, vol. 68(3), pages 271-277, September.
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