Price Rigidity in Brazil: Evidence from CPI Micro Data

Solange Gouvea

No 143, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: In this paper, I investigate the patterns of price adjustments in Brazil. I derive the main stylized facts describing the behavior of price setters directly from a large data set of the CPI price quotes spanning approximately ten years until 2006. I find that on average prices remain unchanged for 2.7 to 3.8 months, exhibiting, however, a large degree of product and sector heterogeneity. Data on the frequency and sign of price changes show that there is a strong symmetry between price increase and decrease. Conversely, as expected under a positive inflation environment, the magnitude of positive price changes compensates this effect. I also provide some insights on the determinants of the patterns of price adjustment. The average duration of price spells decreased when the economy was hit by a confidence shock before 2002 presidential elections. The inflation rate of 5.9 % in 2000, jumped to 7.7% in 2001 and hiked to 12.6 % in 2002. Results suggest that substantial disturbances to average inflation imposed a high enough cost of not adjusting prices and triggered more frequent price reviews.

Date: 2007-09
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (53)

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