Drivers of price inertia: survey evidence

Nataliya Karlova (), Irina Bogacheva and Elena Puzanova
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Nataliya Karlova: Bank of Russia, Russian Federation

No note9, Bank of Russia Working Paper Series from Bank of Russia

Abstract: Inflation inertia hinders the process of slowing down inflation to meet the target level and thus lowers the effectiveness of monetary policy. Widespread methods of assessing the observed inflation inertia using different models can’t clear up important aspects, such as between-industry analysis based on firm-specific characteristics and, consequently, the speed of response to external shocks in different sectors. The paper investigates the pricing behaviour of firms on the basis of a survey of companies’ conducted by the Bank of Russia. According to the results the main drivers of inflation (price) inertia (or delayed and prolonged response of inflation to shocks) in Russia are backwardlooking (or adaptive) expectations of economic agents, inflexible pricing policy, and wage indexation based on past inflation level. It is important for central banks to understand these processes in order to implement and maintain the effective monetary policy.

Keywords: price inertia; price-setting behaviour of companies; inflation expectations; Inflexible pricing policy; survey of companies; Russia (search for similar items in EconPapers)
Pages: 13 pages
Date: 2017-11
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac, nep-mon and nep-tra
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