Price Stickiness in Emerging Economies: Empirical Evidence for Four Latin-American Countries

In spite of vast theoretical developments on the issue of price stickiness in the context of macroeconomic models, papers assessing the empirical validity of such hypothesis using micro-data are scarce. Most of these few attempts have been done for developed economies. The few papers that focus on developing countries, in particular, on Latin America utilize different methodologies and data sets, making it difficult to compare and generalize the results. Thus, in an effort to fill this gap, the aim of this paper is to study price stickiness using more homogenous methodologies and data by estimating the duration of prices (and the frequency of price adjustments) and the price setting rule that is most relevant for four emerging Latin American economies: Brazil, Chile, Colombia, and Mexico. The results reveal that Chile and Colombia exhibit a greater degree of nominal rigidity and that there is a substantial amount of heterogeneity in the duration of prices across the different product categories comprising the CPI basket. Furthermore, it was found that state-dependent price setting rules tend to better explain the behavior of the data in the case of all four countries analyzed.