How frequently do consumer prices change in transition countries?

Abstract

A common feature of recent literature regarding inflation dynamics is the Calvo pricing mechanism. Using this model and aggregate series, I estimate the price change probability and the mean time between price changes in 13 transition countries. The average price change probability is much larger than suggested by the New Keynesian Phillips Curve (NKPC) literature. The corresponding mean time between price changes is slightly longer than 6 months. Moreover, a forward-looking pricing has been found only for four countries.

Keywords:

• price change probability
• transition
• forward-looking pricing
• CEE countries

JEL Classification:

• E31
• P22

Acknowledgement

Financial support for this research was provided by the Polish Ministry of Science and Higher Education under grant number N112 019 31/1717.

Notes

¹ I concentrate on the countries with short and long mean time T. Other figures and series are available upon request. The value of k was set to 5.

² Rudd and Whelan (2005) presented similar conclusion for inflation dynamics.

³ For G ₁, see Lütkepohl (2005). Note, however, that Equation 10(10) differs slightly from the formula presented by Lütkepohl.

⁴ Lütkepohl (2005) showed that in a VAR(1) model for K variables the number of individual responses to be checked for significance is equal to l(K – 1). Since in this case K – 1 = 1, the number of lags l is equal to the number of individual responses.