On What States Do Prices Depend? Answers From Ecuador

The frequency of retail price adjustment differs across goods, both in low inflationary environments, such has the United States, and in high inflationary environments typical of less developed countries. We develop a multishock menu cost model in which retailers intermediate trade between producers...

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Bibliographic Details
Published inJournal of money, credit and banking Vol. 52; no. 8; pp. 1909 - 1935
Main Authors BENEDICT, CRAIG, CRUCINI, MARIO J., LANDRY, ANTHONY
Format Journal Article
LanguageEnglish
Published Columbus Wiley Subscription Services, Inc 01.12.2020
Ohio State University Press
Subjects
Adjustment
Analysis
Consumers
Currency substitution
Developing countries
distribution margin
dollarization
E31
Economic crisis
ecuador
F31
Federal Reserve banks
LDCs
microprices
Monetary policy
Prices
Pricing
state‐dependent pricing
Ecuador
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Summary:The frequency of retail price adjustment differs across goods, both in low inflationary environments, such has the United States, and in high inflationary environments typical of less developed countries. We develop a multishock menu cost model in which retailers intermediate trade between producers and consumers. Since the cost share of intermediate inputs varies across goods, the model produces a cross‐sectional distribution of frequency of price adjustment even though firms face a common menu cost. The model is evaluated using a rich micropanel of retail prices in Ecuador in a period spanning a financial crisis and subsequent dollarization.
Bibliography:This paper was written while Mario Crucini was a visiting senior fellow at the Globalization and Monetary Policy Institute at the Federal Research Bank of Dallas. Mario Crucini gratefully acknowledges the financial support of the National Science Foundation. The views in this paper are our responsibility and should not be interpreted as reflecting the views of the Bank of Canada, the Federal Reserve Bank of Dallas, or the Federal Reserve System. We thank the two anonymous referees for insightful and constructive comments.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12656