An Analysis of the Relationship between Monetary Shocks and Inflation Rate of CPI Components for Testing Price Stickiness (in Persian)

Shahbod Seighalani () and Teymur Rahmani ()
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Shahbod Seighalani: Institute for Management and Planning Studies, Tehran, Iran
Teymur Rahmani: Department of Theoretical Economics, Faculty of Economics, University of Tehran,Tehran, Iran.

The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی و بودجه), 2018, vol. 23, issue 3, 3-22

Abstract: In order to implement inflation targeting policy, it is crucial for monetary policy makers to know how prices (CPI's components) respond to monetary policy shocks. In fact, due to market imperfections and price stickiness, monetary shocks could bring about real effects. In this paper, we use VAR framework and prices stickiness test to examine the impulse response functions of CPI's components to one standard error in liquidity (M2) by using seasonal data over the time period 1369-1390 (1990-2011). Our empirical findings show that 1) Monetary shocks have a lagged effect on disaggregated prices and most prices respond to a monetary shock with a considerable delay, and 2) There is a substantial difference among CPI's components response to monetary base shocks. Therefore, our findings imply the existence of price stickiness, but the intensity of stickiness in CPI's components is different. On the other hand, the difference in the market structure of production of goods and services can explain the difference in their price responses to monetary shocks.

Keywords: Monetary Shock; Price Stickiness; Consumer Price Index; Vector Autoregressive; Error Correction Model. (search for similar items in EconPapers)
Date: 2018
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