On What States Do Prices Depend? Answers from Ecuador

Craig Benedict, Mario Crucini () and Anthony Landry ()

Staff Working Papers from Bank of Canada

Abstract: In this paper, we argue that differences in the cost structures across sectors play an important role in firms’ decisions to adjust their prices. We develop a menu-cost model of pricing in which retail firms intermediate trade between producers and consumers. An important facet of our analysis is that the labor-cost share of retail production differs across goods and services in the consumption basket. For example, the price of gasoline at the retail pump is predicted to adjust more frequently and by more than the price of a haircut because of the high volatility in wholesale gasoline prices relative to the wages of unskilled labor, even when both retailers face a common menu cost. This modeling approach allows us to account for some of the cross-sectional differences observed in the frequency of price adjustments across goods. We apply this model to Ecuador to take advantage of inflation variations and the rich panel of monthly retail prices.

Keywords: Inflation and prices; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E5 F3 F33 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2016
New Economics Papers: this item is included in nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2016/09/swp2016-43.pdf

Related works:
Working Paper: On what states do prices depend? Answers from Ecuador (2016)
Working Paper: On what states do prices depend? answers from ecuador (2016)
Working Paper: On What States Do Prices Depend? Answers From Ecuador (2016)
Working Paper: On what states do prices depend? Answers from Ecuador (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-43

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().