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Inflation in Poland under state-dependent pricing

Author

Listed:
  • Pawel Baranowski
  • Mariusz Gorajski
  • Maciej Malaczewski
  • Grzegorz Szafranski

    () (Department of Econometrics, Institute of Econometrics, Faculty of Economics and Sociology, University of Lodz)

Abstract

We analyse the short-term dynamics of Polish economy with a prominent state-dependent pricing mechanism of Dotsey, King and Wolman (1999). We compare macroeconomic evidence of price rigidity in a small-scale DSGE model with a state-dependent Phillips curve (SDPC) derived by Bakhshi, Khan and Rudolf (2007) to a benchmark model including hybrid New-Keynesian Phillips Curve (NHPC) of Gali and Gertler (1999). To analyse monetary policy transmission mechanism we estimate both models with Bayesian techniques and focus on the comparison of distribution of price vintages, a degree of price stickiness, values of parameters in Phillips curve equations, and impulse responses to macroeconomic shocks. The estimated state-dependent pricing model generates a median duration of prices about 4 quarters compared to 8 quarters in a time-dependent model. In the state-dependent pricing model it takes more time to dampen inflation dynamics after a monetary policy relative to a time-dependent counterpart. The menu cost model is also able to identify higher variance of technology shocks, and higher persistence in preference shocks, while the dynamics of the impulse responses in time- and state-dependent pricing models are hard to distinguish.

Suggested Citation

  • Pawel Baranowski & Mariusz Gorajski & Maciej Malaczewski & Grzegorz Szafranski, 2013. "Inflation in Poland under state-dependent pricing," Discussion Papers 83, Aboa Centre for Economics.
  • Handle: RePEc:tkk:dpaper:dp83
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    References listed on IDEAS

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    1. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 655-690.
    2. Bakhshi, Hasan & Khan, Hashmat & Rudolf, Barbara, 2007. "The Phillips curve under state-dependent pricing," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2321-2345, November.
    3. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
    4. Mark Gertler & John Leahy, 2008. "A Phillips Curve with an Ss Foundation," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 533-572, June.
    5. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115, pages 171-199.
    6. Jordi Galí, 2008. "Introduction to Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework," Introductory Chapters,in: Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework Princeton University Press.
    7. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    8. Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 863-904.
    9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    10. Adjemian, Stéphane & Bastani, Houtan & Juillard, Michel & Karamé, Fréderic & Maih, Junior & Mihoubi, Ferhat & Perendia, George & Pfeifer, Johannes & Ratto, Marco & Villemot, Sébastien, 2011. "Dynare: Reference Manual Version 4," Dynare Working Papers 1, CEPREMAP, revised Feb 2018.
    11. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
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    Cited by:

    1. repec:sgh:gosnar:y:2017:i:4:p:39-61 is not listed on IDEAS
    2. Georgiadis, Georgios & Jancokova, Martina, 2017. "Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks," Globalization and Monetary Policy Institute Working Paper 314, Federal Reserve Bank of Dallas.
    3. Mariusz Gorajski, 2016. "Robust monetary policy in a linear model of the polish economy: is the uncertainty in the model responsible for the interest rate smoothing effect?," Lodz Economics Working Papers 1/2016, University of Lodz, Faculty of Economics and Sociology.

    More about this item

    Keywords

    state-dependent pricing; inflation; menu costs; monetary policy; Polish economy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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