Endogenous frequencies and large shocks: price setting in Greece during the crisis

Huw Dixon, Theodora Kosma and Pavlos Petroulas

No 312, Working Papers from Bank of Greece

Abstract: We utilize a unique micro price data set for Greece that underpins the Greek CPI. It spans almost two decades, during which Greece suffered a large economic shock. We find that during this time there were significant changes in the pricing behavior of Greek firms. We also find macro-economic developments such as annual inflation and output growth are important factors in determining the frequency and size of price changes. This leads to an intertemporal inflation dynamic linking current inflation to future price behavior and inflation. Utilizing the empirical estimates from the data, we combine a Taylor rule and Euler equation with the inflation dynamic resulting from the asymmetric impact of inflation on the frequency of price increases and the frequency of price decreases. The results of the simulations capture the Greek inflation developments well. Moreover, they also capture developments in the frequency of price increases and decreases seen in other economies and over different time-periods.

Keywords: inflation dynamics; frequencies; prices; microdata (search for similar items in EconPapers)
JEL-codes: C26 C41 E31 E37 (search for similar items in EconPapers)
Pages: 48
Date: 2023-02
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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