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Price Behavior in an Inflationary Environment: Evidence from Supermarket Data

  • Carlos Felipe Jaramillo
  • Daniel Cerquera
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    This paper analyzes several important aspects of price behavior using disaggregated weekly data on prices of supermarket products in Colombia between 1991 and 1994. The analysis shows that despite hight and persistent rates of inflation in the economy, price quotations persist on average for two months. The large proportion of observations for which stores opt not to change prices highlight the importance of menu costs, even in an economy accustomed to persistent double-digit inflation. Despite the seemingly hight levels of rigidity, the degree of real price erosion found before prices change are lower than those found in other inflationary economies. Price declines are not uncommon, and downward rigidity does not seem to be an issue in the Colombian inflationary environment. Aggregate price changes are also found to exert an important effect on relative price variation at the aggregate and commodity level.

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    Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 138.

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    Handle: RePEc:bdr:borrec:138
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    1. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
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    4. Van Hoomissen, Theresa, 1988. "Price Dispersion and Inflation: Evidence from Israel," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1303-14, December.
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    7. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1996. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Documentos de Trabajo 12, Centro de Economía Aplicada, Universidad de Chile.
    8. repec:bla:restud:v:44:y:1977:i:2:p:287-303 is not listed on IDEAS
    9. Domberger, Simon, 1987. "Relative Price Variability and Inflation: A Disaggregated Analysis," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 547-66, June.
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    11. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
    12. Driffill, John & Mizon, Grayham E. & Ulph, Alistair, 1990. "Costs of inflation," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 19, pages 1013-1066 Elsevier.
    13. Simon Hall & Anthony Yates, 1998. "Are there downward nominal rigidities in product markets?," Bank of England working papers 80, Bank of England.
    14. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers 661, UCLA Department of Economics.
    15. Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 79-95, February.
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    18. Taylor, John B., 1981. "On the relation between the variability of inflation and the average inflation rate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 57-85, January.
    19. Hahn, Frank, 1990. "On Inflation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 15-25, Winter.
    20. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-52, February.
    21. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
    22. Ball, L. & Mankiw, G.H., 1992. "Relative-Price Change as Aggregate Supply Shocks," Harvard Institute of Economic Research Working Papers 1609, Harvard - Institute of Economic Research.
    23. Mizon, Grayham E & Safford, J Claire & Thomas, Stephen H, 1990. "The Distribution of Consumer Price Changes in the United Kingdom," Economica, London School of Economics and Political Science, vol. 57(226), pages 249-62, May.
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    25. Reinsdorf, Marshall, 1994. "New Evidence on the Relation between Inflation and Price Dispersion," American Economic Review, American Economic Association, vol. 84(3), pages 720-31, June.
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