Sticky Prices: The Impact of Regulation
Journal of Monetary Economics, 49 (2002) 797-821
34 Pages Posted: 18 Sep 2015
Date Written: May 20, 2015
Abstract
This paper finds that approximately one-third of the items in the CPI are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions. Consequently, regulation is a possible partial explanation of sticky prices in the overall rate of inflation, and delayed response to changes in the money supply. A survey is used to decompose the CPI into freely determined and regulated sub-components. Evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely determined sector, thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy.
Keywords: Price stickiness, Money supply, Granger causation, Impulse response
Suggested Citation: Suggested Citation