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The Stickiness of Colombian Consumer Prices

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  • Juan Manuel Julio
  • Héctor Manuel Zárate
  • Manuel Hernández

Abstract

The price setting behavior of Colombian retailers of goods and services was studied based on a unique dataset containing 12,052,970 individual price reports covering all items in the Colombian CPI from March 1999 to May 2008. The main results are summarized as follows: 1. Colombian consumer prices were found to be stickier than those in Chile and Portugal and might be more flexible than those in the Euro Area and some European countries. 2. Price reductions are not rare. Forty percent of price changes were found to be reductions. 3. Absolute percentage price changes were found to be larger than inflation. 4. As inflation is reduced in Colombia, the following happens: (i) price stickiness increases, (ii) the distribution of price stickiness concentrates on the rigid side, (iii) the variability and bias of the distribution of percentage price changes decreases, and (iv), nominal downward rigidities in the frequency of price changes are invariant to inflation. 5. A slight downward nominal price rigidity was detected in the data. 6. Price change synchronization was found to be low. 7. About 32% of the CPI corresponds to Taylor contracts, 34% to other time dependent rules and 34% to state dependent rules. These findings provide some of the micro fundamentals for the design of staggered contract models for monetary policy analysis in Colombia.

Suggested Citation

  • Juan Manuel Julio & Héctor Manuel Zárate & Manuel Hernández, 2010. "The Stickiness of Colombian Consumer Prices," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 28(63), pages 100-153, December.
    • Handle: RePEc:bdr:ensayo:v:28:y:2010:i:63:p:100-153
    DOI: 10.32468/Espe.6303
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    Cited by:

    1. Juan Manuel Julio & Javier Guillermo Gómez & Manuel Dario Hernández, 2017. "La Inflación de los Precios Rígidos en Colombia," Borradores de Economia 1007, Banco de la Republica de Colombia.
    2. Ana Iregui & Ligia Melo & María Ramírez, 2012. "Wage Adjustment Practices and the Link between Price and Wages: Survey Evidence from Colombian Firms," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 76, pages 17-53.
    3. Pietro Bonaldi & Andrés González & Diego Rodríguez, 2011. "Importancia de las rigideces nominales y reales en Colombia: un enfoque de equilibrio general dinámico y estocástico," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 29(66), pages 48-78, December.
    4. Luz A. Flórez & Karen L. Pulido-Mahecha & Mario A. Ramos-Veloza, 2018. "Okun´s law in Colombia: a non-linear cointegration," Borradores de Economia 1039, Banco de la Republica de Colombia.
    5. Juan Manuel Julio-Román, 2019. "Estimating the Exchange Rate Pass-Through: A Time-Varying Vector Auto-Regression with Residual Stochastic Volatility Approach," Borradores de Economia 1093, Banco de la Republica de Colombia.
    6. Julio-Román, Juan Manuel, 2011. "Heterogeneidad observada y no observada en la formación de los precios del IPC colombiano," Chapters, in: López Enciso, Enrique & Ramírez Giraldo, María Teresa (ed.), Formación de precios y salarios en Colombia T.1, volume 1, chapter 7, pages 217-247, Banco de la Republica de Colombia.
    7. Andrés González & Lavan Mahadeva & Juan D. Prada & Diego Rodríguez, 2011. "Policy Analysis Tool Applied to Colombian Needs: Patacon Model Description," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 29(66), pages 222-245, December.
    8. Valeria Bejarano-Salcedo & Juan Manuel Julio-Román & Edgar Caicedo-García & Julián Alonso Cárdenas-Cárdenas, 2020. "Entendiendo, Modelando y Pronosticando el Efecto de “El Niño” Sobre los Precios de los Alimentos: El Caso Colombiano," Borradores de Economia 1102, Banco de la Republica de Colombia.
    9. Arango-Thomas, Luis Eduardo & Ardila, Luz Karine & Gómez, Miguel Ignacio, 2011. "Efecto del cambio del salario mínimo en el precio de las comidas fuera del hogar en Colombia," Chapters, in: López Enciso, Enrique & Ramírez Giraldo, María Teresa (ed.), Formación de precios y salarios en Colombia T.2, volume 2, chapter 21, pages 873-918, Banco de la Republica de Colombia.
    10. Mr. Sergi Lanau & Adrian Robles & Mr. Frederik G Toscani, 2018. "Explaining Inflation in Colombia: A Disaggregated Phillips Curve Approach," IMF Working Papers 2018/106, International Monetary Fund.

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    More about this item

    Keywords

    Price-Setting Behavior; Sticky Prices; CPI;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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