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Stuck at zero: Price rigidity in a runaway inflation

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  • Snir, Avichai
  • Chen, Haipeng (Allan)
  • Levy, Daniel

Abstract

We use micro level retail price data from convenience stores to study the link between 0-ending price points and price rigidity during a period of a runaway inflation, when the annual inflation rate was in the range of 60%–430%. Surprisingly, we find that more round prices are less likely to adjust, and when they do adjust, the average adjustments are larger. These findings suggest that price adjustment barriers associated with round prices are strong enough to cause a systematic delay in price adjustments even in a period of a runaway inflation, when 85 percent of the prices change every month.

Suggested Citation

  • Snir, Avichai & Chen, Haipeng (Allan) & Levy, Daniel, 2021. "Stuck at zero: Price rigidity in a runaway inflation," Economics Letters, Elsevier, vol. 204(C).
  • Handle: RePEc:eee:ecolet:v:204:y:2021:i:c:s0165176521001622
    DOI: 10.1016/j.econlet.2021.109885
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    Cited by:

    1. Bergen, Mark & Bergen, Thomas & Levy, Daniel & Semenov, Rose, 2022. "3 Lessons from Hyperinflationary Periods," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Forthcomi.
    2. Levy, Daniel & Snir, Avichai, 2022. "Potterian Economics," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1, pages 1-32.
    3. Snir, Avichai & Chen, Haipeng (Allan) & Levy, Daniel, 2022. "Zero-Ending Prices, Cognitive Convenience, and Price Rigidity," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Forthcomi, pages 1-39.

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    More about this item

    Keywords

    Sticky prices/rigid prices; 0-ending price points; 9-ending price points; Runaway inflation; Cost of price adjustment; Menu cost;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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