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Drivers of price inertia: survey evidence

Author

Listed:
  • Nataliya Karlova

    (Bank of Russia, Russian Federation)

  • Irina Bogacheva

    (Bank of Russia, Russian Federation)

  • Elena Puzanova

    (Bank of Russia, Russian Federation)

Abstract

Inflation inertia hinders the process of slowing down inflation to meet the target level and thus lowers the effectiveness of monetary policy. Widespread methods of assessing the observed inflation inertia using different models can’t clear up important aspects, such as between-industry analysis based on firm-specific characteristics and, consequently, the speed of response to external shocks in different sectors. The paper investigates the pricing behaviour of firms on the basis of a survey of companies’ conducted by the Bank of Russia. According to the results the main drivers of inflation (price) inertia (or delayed and prolonged response of inflation to shocks) in Russia are backwardlooking (or adaptive) expectations of economic agents, inflexible pricing policy, and wage indexation based on past inflation level. It is important for central banks to understand these processes in order to implement and maintain the effective monetary policy.

Suggested Citation

  • Nataliya Karlova & Irina Bogacheva & Elena Puzanova, 2017. "Drivers of price inertia: survey evidence," Bank of Russia Working Paper Series note9, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:note9
    as

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    References listed on IDEAS

    as
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    3. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
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    Keywords

    price inertia; price-setting behaviour of companies; inflation expectations; Inflexible pricing policy; survey of companies; Russia;
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