Exchange rates, uncertainty, and price-setting: Evidence from CPI microdata

Mario Canales and Bernabe Lopez-Martin

Economic Modelling, 2024, vol. 139, issue C

Abstract: We analyze the role of exchange rates and uncertainty for inflation and price-setting behavior. To this end, we exploit micro-level data underlying the Consumer Price Index of Chile for the period 2010–2018, and employ a standard dynamic distributed lags specification. We find that uncertainty and exchange rates are positively associated with product-level inflation. Then, we analyze the effect on different dimensions of price-setting. The relation with the frequency of positive (negative) price changes at the variety-establishment level is positive (negative). The results for frequencies are quantitatively important, highlighting this adjustment margin against movements in exchange rates and uncertainty. In contrast, we find little association with the magnitudes of price adjustments.

Keywords: Exchange rates; Uncertainty; Inflation; Price-setting (search for similar items in EconPapers)
JEL-codes: D80 E31 E66 G18 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:139:y:2024:i:c:s0264999324001184

DOI: 10.1016/j.econmod.2024.106762

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