End of the line: Relative Price Variability and Inflation in a Fixed Price Regime

Rodrigo Cerda and Rolf Lüders

No 395, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: We study the relation between inflation rate and relative price variability using data of prices on 23 disaggregated food items since 1960 to 2003 in Chile. The behavior of inflation rate is quite variable in that country during that time span and more interestingly, there are periods of time in which prices were determined (fixed) by the economic authorities. We find consistent evidence that a larger inflation rate causes a larger relative price variability and this effect is much larger in periods in which prices were fixed. We interpret that result as firms over-reacting to inflation when setting their relative prices if they assume that it is unlikely to reset their prices in the near future. That result holds even if we follow different econometric approaches and it holds for all the food products considered.

Keywords: Inflation; price dispersions (search for similar items in EconPapers)
JEL-codes: E3 N1 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.economia.uc.cl/docs/doctra/dt-395.pdf (application/pdf)

Related works:
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:ioe:doctra:395

Access Statistics for this paper

More papers in Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile. Contact information at EDIRC.
Bibliographic data for series maintained by Jaime Casassus (jcasassus@uc.cl).