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Price Setting in Iran: Some Stylized Facts from CPI Micro Data

Maryam Hemmaty () and Saeed Bayat ()
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Maryam Hemmaty : Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI)
Saeed Bayat : Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI)

Journal of Money and Economy, 2013, vol. 8, issue 1, 75-108

Abstract: Understanding the degree of price stickiness and the nature of price setting is necessary for analyzing the effects of monetary policy on economy. To the best of our knowledge, no comprehensive study has examined the degree of price stickiness in Iran yet. For this reason, we examine the basic features of retail price setting behavior using a large data set containing the micro data underlying the construction of the CPI over the period 2004:5 to 2011:9. First we calculate the frequency and size of price changes for 359 categories of consumer goods and services in order to obtain the degree of nominal rigidity of consumer prices. We then investigate what models of price setting, including time dependent and state dependent models, are more consistent with price adjustment pattern in Iran. Based on our results, Consumer prices are highly flexible and there is a high degree of downward rigidity. Also, there is a considerable amount of heterogeneity across sectors both in terms of the frequency and size of price changes. The methods used in this paper for identifying the pattern of pricing supports the existence of both time and state-dependent pricing patterns.

Keywords: Price rigidity; Price setting; Frequency of price changes; Duration; State dependent pricing models; Hazard function (search for similar items in EconPapers)
JEL-codes: E30 E31 E5 (search for similar items in EconPapers)
Date: 2013
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