Unveiling Price Adjustment Dynamics: Insights from Armenia

Understanding price-setting behavior is essential to analyze inflation dynamics and design effective monetary policy. While extensive research exists on developed economies, little is known about how prices adjust in emerging markets, like Armenia, which experience high inflation volatility and frequent external shocks. This study fills that gap by examining the price adjustment patterns in Armenia from January 2007 to December 2021, using consumer price data from the Statistical Committee of the Republic of Armenia. The analysis reveals that prices in Armenia change more frequently than in advanced economies, with an average price spell of 2.4 months. However, the frequency of price changes varies notably across product categories. To better understand inflation dynamics, this study constructs sticky and flexible price inflation measures tailored to Armenian consumer prices. Empirical testing of time-dependent pricing models reveals their limitations in capturing price adjustment behavior in an emerging economy like Armenia. The findings suggest that price changes are influenced by economic shocks rather than occurring purely at fixed intervals, aligning more closely with state-dependent pricing models.