Inflation and price setting in a natural experiment

Konieczny, Jerzy; Skrzypacz, Andrzej

doi:10.1016/j.jmoneco.2004.07.006

Cited by 62 publications

(42 citation statements)

References 18 publications

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“…Nautz and Scharff (2005) argue that the influence of expected inflation in Germany disappears because a credible monetary policy stabilized inflationary expectations on a low level. In fact, Konieczny and Skrzypacz (2005) establish a more pronounced effect of expected inflation during the transition of Poland from a planned to a market economy when inflation expectations were relatively high.…”

Section: Expected Inflation Versus Unexpected Inflationmentioning

confidence: 85%

“…(Fielding and Mizen (2000), Silver and Ioannidis (2001), Konieczny and Skrzypacz (2005), Nautz and Scharff (2005)). While some allow for a specific role of expected and unexpected inflation, a common feature of all these contributions is that they restrict the attention to linear relationships implying that the marginal impact of inflation on RPV does not depend on the inflation level.…”

Section: Non Technical Summarymentioning

confidence: 99%

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Inflation and relative price variability in the euro area: evidence from a panel threshold model

Nautz

Scharff

2012

Applied Economics

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In recent macroeconomic theory, relative price variability (RPV) generates the central distortions of inflation. This paper provides first evidence on the empirical relation between inflation and RPV in the euro area focusing on threshold effects of inflation. We find that expected inflation significantly increases RPV if inflation is either very low (below -1.38% p.a.) or very high (above 5.94% p.a.). In the intermediate regime, however, expected inflation has no distorting effects which supports price stability as an outcome of optimal monetary policy. Keywords Non Technical SummaryThere is now a general consensus that inflation produces welfare costs and price stability should be the prior goal of monetary policy. In this regard, recent macroeconomic theory emphasizes the distorting impact of inflation on the information content of nominal prices. If inflation causes a suboptimal adjustment of goods prices due to price adjustment costs or imperfect information, then inflation increases relative price variability (RPV), reduces the transparency of the relative price mechanism and impedes the efficient allocation of resources.The bulk of the empirical literature deals with the linear relationship between inflation and RPV implying that the marginal impact of inflation on RPV does not depend on the inflation level. However, the impact of inflation on the economy might be non-linear.As the empirical literature on the link between inflation and long-term growth shows, the effect of inflation on growth changes if inflation is above certain threshold values of inflation. Moreover, the European Central Bank, for example, defines price stability as an inflation rate below but close to the critical level of 2%.Accounting for a potential non-linear impact of inflation on the economy, this study provides evidence on the empirical relation between inflation and RPV in the euro area focusing on threshold effects of inflation. The application of panel threshold models allows to test for the number of inflation thresholds and to estimate both the threshold levels as well as the marginal impact of inflation on RPV for the various threshold levels of inflation. The empirical results show that threshold effects of inflation can be confirmed for the inflation-RPV nexus in the euro area. In addition to a linear impact of unexpected inflation, there is strong evidence in favor of a non-linear influence of expected inflation on RPV. We find that expected inflation significantly increases RPV if price changes are either clearly negative (< -1.4% p.a.) or very high (> 5.9% p.a.).Between these two thresholds expected inflation has according to our estimations no real effects on the economy via its impact on RPV (but may have other effects).Therefore, threshold effects of inflation provide a further rational for the announcement of critical levels of inflation and inflation target zones. Nicht technische Zusammenfassung

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Section: Expected Inflation Versus Unexpected Inflationmentioning

confidence: 85%

Section: Non Technical Summarymentioning

confidence: 99%

Inflation and relative price variability in the euro area: evidence from a panel threshold model

Nautz

Scharff

2012

Applied Economics

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“…Micro analysis is available for the Czech Republic, Poland, Slovakia and Macedonia [see Babetski, Coricelli, and Horváth (2006), Konieczny and Skrzypacz (2005), Coricelli, and Horváth (2006) and Petrovska and Ramadani (2010), respectively]. Some of the results signal that high inflation persistence can indeed be a problem for some CEEC countries.…”

Section: Literature Reviewmentioning

confidence: 99%

“…By contrast, the increasing share of services in consumption will reduce persistence. Konieczny and Skrzypacz (2005) analyzed the behavior of price setters in Poland during the transition from a planned to a market economy, using a large disaggregated data set. Authors found that the size and frequency of price changes, as well as relative price variability, all increase as inflation rises.…”

Section: Literature Reviewmentioning

confidence: 99%

Analysis of Inflation Persistence in Serbia

Miletić¹,

Miletić²

2016

APE

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In this paper, we analyzed inflation persistence in Serbia, both at the aggregate level as well as for the different components of the consumer price index. The analysis was done for the series of prices given on the quarterly basis for the period from 2002q1 to 2013q2. We applied univariate autoregression model (AR) of order p, whereby sum of autoregression coefficients was used as a measure of inflation persistence. In addition, special attention was paid to the problem of structural breaks in the series of inflation as it may overestimate the level of inflation persistence and could give misleading signals. The importance of appropriate assessment of the inflation persistence stems from the fact that the impossibility of faster return of inflation to the long-run equilibrium level, after external or domestic shock, has implications on the conducting of monetary policy and represents a major challenge for its effectiveness, especially in emerging countries like Serbia. If the persistence of inflation is higher, monetary policy reaction should be stronger and proactive. If the estimated level and persistence of inflation is lower in comparison with previous empirical analysis, this could suggest that inflation expectations are now better anchored, which is particularly important for countries with inflation targeting regime. Results of the analysis indicate that the inflation persistence in the Serbia is modest and that is higher at the aggregate level compared to the simple average of the components of the consumer price index. This is probably consequence of so-called aggregation effect, since the highest persistency have the prices of those products with the largest share in the consumer basket. In the case of Serbia, food prices have the highest degree of persistence and the largest share in the consumer basket.

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“…See also Cecchetti (1986), Rotemberg (1987), Basu (1995), Danziger (1999, Ball and Romer (2003), Konieczny and Skrzypacz (2005), and Fisher and Konieczny (2006).…”

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confidence: 99%

Asymmetric Price Adjustment in the Small

et al. 2006

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Abstract:Analyzing a large scanner price dataset, we uncover a surprising regularitysmall price increases occur more frequently than small price decreases for price changes of up to 10¢. Furthermore, we find that inflation can explain some of the asymmetry. Inflation, however, offers a partial explanation because substantial proportion of the asymmetry remains unexplained, even after accounting for the inflation. For example, the asymmetry holds also after excluding inflationary periods from the data, and even for products whose price had not increased. The findings hold for different aggregate and disaggregate measures of inflation and also after allowing for lagged price adjustments.JEL Codes: E31; D11; D21; D80; L11; L16; M31

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Inflation and price setting in a natural experiment

Cited by 62 publications

References 18 publications

Inflation and relative price variability in the euro area: evidence from a panel threshold model

Inflation and relative price variability in the euro area: evidence from a panel threshold model

Analysis of Inflation Persistence in Serbia

Asymmetric Price Adjustment in the Small

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