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Time-dependent or state-dependent pricing? Evidence from firms’ response to inflation shocks

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  • Guimarães, Bernardo de Vasconcellos
  • Mazini, André Chaves
  • Mendonça, Diogo de Prince

Abstract

This paper proposes a test for distinguishing between time-dependent and state-dependent pricing based on whether the timing of pricing changes is affected by realized or expeted inflation. Using Brazilian data and exploring a large discrepancy between realized and expected inflation in 2002-3, we obtain a strong relation between expected inflation and duration of price spells, but little effect of inflation shocks on the frequency of price adjustment. The results thus support models with timedependent pricing, where the timing for following changes is optimally chosen whenever firms adjust prices

Suggested Citation

  • Guimarães, Bernardo de Vasconcellos & Mazini, André Chaves & Mendonça, Diogo de Prince, 2015. "Time-dependent or state-dependent pricing? Evidence from firms’ response to inflation shocks," Textos para discussão 383, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    • Handle: RePEc:fgv:eesptd:383
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    References listed on IDEAS

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    1. Bernardo Guimaraes & Kevin D. Sheedy, 2011. "Sales and Monetary Policy," American Economic Review, American Economic Association, vol. 101(2), pages 844-876, April.
    2. Marco Bonomo & Carlos Carvalho, 2010. "Imperfectly Credible Disinflation under Endogenous Time‐Dependent Pricing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 799-831, August.
    3. Solange Gouvea, 2007. "Price Rigidity in Brazil: Evidence from CPI Micro Data," Working Papers Series 143, Central Bank of Brazil, Research Department.
    4. Mark Gertler & John Leahy, 2008. "A Phillips Curve with an Ss Foundation," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 533-572, June.
    5. Celio Feltrin & Bernardo Guimaraes, 2015. "Time-dependent or state-dependent pricing? Evidence from a large devaluation episode," Discussion Papers 1504, Centre for Macroeconomics (CFM).
    6. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 171-199.
    7. Virgiliu Midrigan, 2010. "Is Firm Pricing State or Time Dependent? Evidence from U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 643-656, August.
    8. Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 863-904.
    9. Andrew S. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 703-725.
    10. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284, Elsevier.
    11. Etienne Gagnon, 2009. "Price Setting during Low and High Inflation: Evidence from Mexico," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1221-1263.
    12. Bonomo, Marco & Carvalho, Carlos, 2004. "Endogenous Time-Dependent Rules and Inflation Inertia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1015-1041, December.
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    Cited by:

    1. Barthélémy Bonadio & Andreas M Fischer & Philip Sauré, 2020. "The Speed of Exchange Rate Pass-Through," Journal of the European Economic Association, European Economic Association, vol. 18(1), pages 506-538.
    2. Celio Feltrin & Bernardo Guimaraes, 2015. "Time-dependent or state-dependent pricing? Evidence from a large devaluation episode," Discussion Papers 1504, Centre for Macroeconomics (CFM).
    3. Banerjee, Shesadri & Bhattacharya, Rudrani, 2017. "Micro-level Price Setting Behaviour in India: Evidence from Group and Sub-Group Level CPI-IW Data," Working Papers 17/217, National Institute of Public Finance and Policy.
    4. Prince, Diogo de, 2018. "Are price hazard functions really decreasing functions in Brazil?," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 266-276.
    5. Guimaraes, Bernardo & Feltrin Jr, Celio, 2016. "Time-Dependent or State-Dependent Pricing? Evidence From a Large Devaluation," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 36(2), November.

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