Price setting under uncertainty about inflation

Andrés Drenik, Diego J. Perez

    Research output: Contribution to journalArticle

    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 languageEnglish (US)
    JournalJournal of Monetary Economics
    DOIs
    StateAccepted/In press - 2019

    Keywords

    • Informational frictions
    • Price setting
    • Social value of public information

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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