Time-dependent or State-dependent Pricing? Evidence from Firms' Response to Inflation Shocks

Bernardo Guimaraes, Andre Mazini and Diogo de Prince
Authors registered in the RePEc Author Service: Diogo de Prince Mendonça ()

Brazilian Review of Econometrics, 2016, vol. 36, issue 1

Abstract: This paper proposes a test for distinguishing between time-dependent and state-dependent pricing based on whether the timing of pricing changes is affected by realized or expeted inflation. Using Brazilian data and exploring a large discrepancy between realized and expected inflation surrounding the election of President Lula in 2002-3, we obtain a strong relation between expected inflation and duration of price spells, but little effect of inflation shocks on the frequency of price adjustment. The results thus support models with time-dependent pricing, where the timing for following changes is optimally chosen whenever firms adjust prices.

Date: 2016
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Working Paper: Time-dependent or state-dependent pricing? Evidence from firms’ response to inflation shocks (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:36:y:2016:i:1:a:26962

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