DOI: https://doi.org/10.52903/wp2023312
ENDOGENOUS FREQUENCIES AND LARGE SHOCKS: PRICE SETTING IN GREECE DURING THE CRISIS
Huw Dixon
Cardiff Business School
Theodora Kosma
Bank of Greece
Pavlos Petroulas
Bank of Greece
Abstract
We utilize a unique micro price data set for Greece that underpins the Greek CPI. It spans almost two decades, during which Greece suffered a large economic shock. We find that during this time there were significant changes in the pricing behavior of Greek firms. We also find macro-economic developments such as annual inflation and output growth are important factors in determining the frequency and size of price changes. This leads to an intertemporal inflation dynamic linking current inflation to future price behavior and inflation. Utilizing the empirical estimates from the data, we combine a Taylor rule and Euler equation with the inflation dynamic resulting from the asymmetric impact of inflation on the frequency of price increases and the frequency of price decreases. The results of the simulations capture the Greek inflation developments well. Moreover, they also capture developments in the frequency of price increases and decreases seen in other economies and over different time-periods.
JEL-classification: E31, E37, C26, C41
Keywords: inflation dynamics, frequencies, prices, microdata.
Acknowledgements: We are grateful to the Hellenic Statistical Authority for sharing the micro price data and in particular to Argiro Kourtaki and Spiridoula Sideri for sharing their knowledge of the Greek micro data with us. For useful comments and suggestions we would like to thank Dimitris Malliaropoulos, Francesco Lippi, Thomas Zoerner, participants at the ICMAIF conference in Crete on May 2022 and in the PRISMA network workshop in Frankfurt on December2022. The views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Greece.
Correspondence:
Pavlos Petroulas
Bank of Greece
21 E Venizelos Ave,
Athens, 10250, Greece,
email: ppetroulas@bankofgreece.gr