Price setting under uncertainty about inflation

Andrés Drenik; Diego J. Perez

doi:10.1016/j.jmoneco.2019.10.004

Price setting under uncertainty about inflation

Andrés Drenik, Diego J. Perez

Research output: Contribution to journal › Article › peer-review

Abstract

We analyze the manipulation of inflation statistics that occurred in Argentina starting in 2007 to test the relevance of informational frictions in price setting. We estimate that the manipulation of statistics was associated with a higher degree of price dispersion. This effect is analyzed in the context of a quantitative general equilibrium model in which firms use information about the inflation rate to set prices. Reporting inaccurate measures of the CPI entails significant welfare losses, especially in economies with volatile monetary policy.

Original language	English (US)
Pages (from-to)	23-38
Number of pages	16
Journal	Journal of Monetary Economics
Volume	116
DOIs	https://doi.org/10.1016/j.jmoneco.2019.10.004
State	Published - Dec 2020

Keywords

Informational frictions
Price setting
Social value of public information

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jmoneco.2019.10.004

Cite this

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AB - We analyze the manipulation of inflation statistics that occurred in Argentina starting in 2007 to test the relevance of informational frictions in price setting. We estimate that the manipulation of statistics was associated with a higher degree of price dispersion. This effect is analyzed in the context of a quantitative general equilibrium model in which firms use information about the inflation rate to set prices. Reporting inaccurate measures of the CPI entails significant welfare losses, especially in economies with volatile monetary policy.

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KW - Price setting

KW - Social value of public information

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Price setting under uncertainty about inflation

Abstract

Keywords

ASJC Scopus subject areas

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