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Stuck at Zero: Price Rigidity in a Runaway Inflation

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  • Daniel Levy

    (Bar-Ilan University)

  • Avichai Snir

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 0-ending 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

  • Daniel Levy & Avichai Snir, 2021. "Stuck at Zero: Price Rigidity in a Runaway Inflation," Working Papers 2021-04, Bar-Ilan University, Department of Economics.
    • Handle: RePEc:biu:wpaper:2021-04
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    References listed on IDEAS

    as
    1. Lach, Saul & Tsiddon, Daniel, 1996. "Staggering and Synchronization in Price-Setting: Evidence from Multiproduct Firms," American Economic Review, American Economic Association, vol. 86(5), pages 1175-1196, December.
    2. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-389, April.
    3. Saul Lach & Daniel Tsiddon, 2007. "Small price changes and menu costs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 649-656.
    4. Sussman, Oren, 1992. "Financial Liberalization: The Israeli Experience," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 387-402, July.
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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. 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, vol. 203, pages 519-542.
    3. Daniel Levy & Avichai Snir, 2022. "Potterian economics," Oxford Open Economics, Oxford University Press, vol. 1, pages 1-32.
    4. 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, vol. 203, pages 519-542.

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