Documentos de trabajo
Time-dependent or state-dependent pricing? Evidence from firms’ response to inflation shocks
Date
2015-03-25Registration in:
TD 383
Author
Guimarães, Bernardo de Vasconcellos
Mazini, André Chaves
Mendonça, Diogo de Prince
Institutions
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