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Micro-level Price Setting Behaviour in India: Evidence from Group and Sub-Group Level CPI-IW Data

Shesadri Banerjee () and Rudrani Bhattacharya ()
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Shesadri Banerjee: Madras School of Development Studies
Rudrani Bhattacharya: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: In the contemporary literature on macroeconomics, the mainstream frameworks for policy evaluation have recognized the significance of price rigidities emerging from the micro-level pricing behaviour of firms for explaining the short and medium run effects of monetary policy interventions. In this study, we evaluate stickiness in price adjustment for the aggregate Con-sumer Price Index for Industrial Workers (CPI-IW) and its major components in the context of Indian economy. Our findings broadly suggest greater monthly frequency of price changes and lower duration of price spell for food group, compared to non-food group. After control-ling for small price changes due to sector-specific idiosyncratic shocks, stickiness in price-adjustment increases drastically for food components, corroborating to the high inflation per-sistence observed in the food sector in India in the recent past. We also find evidence of ex-ogenous versus menu-cost driven pricing behaviour in India.

Keywords: Price stickiness; Time-dependent; State-dependent; Dip test; Silverman test, In-dian economy (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 20
Date: 2017-12
New Economics Papers: this item is included in nep-mac
Note: Working Paper 217, 2017
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