Price setting under uncertainty about inflation

Andrés Drenik and Diego J. Perez

Journal of Monetary Economics, 2020, vol. 116, issue C, 23-38

Abstract: We analyze the manipulation of inflation statistics that occurred in Argentina starting in 2007 to test the relevance of informational frictions in price setting. We estimate that the manipulation of statistics was associated with a higher degree of price dispersion. This effect is analyzed in the context of a quantitative general equilibrium model in which firms use information about the inflation rate to set prices. Reporting inaccurate measures of the CPI entails significant welfare losses, especially in economies with volatile monetary policy.

Keywords: Price setting; Informational frictions; Social value of public information (search for similar items in EconPapers)
JEL-codes: D8 E1 E3 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:116:y:2020:i:c:p:23-38

DOI: 10.1016/j.jmoneco.2019.10.004

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