Price Setting in a Variable Macroeconomic Environment: Evidence from Brazilian CPI (original) (raw)

Abstract

We study how price setting responds to changes in the macroeconomic environment. We use a unique data base from the Brazilian CPI index of Fundação Getulio Vargas, ranging from April 1996 to December 2008. During this period a number of important events produced substantial macroeconomic variability: two emerging market crisis, a change of exchange rate and monetary policy regime, an election crisis, and a regular disinflation. As a consequence, inflation, macroeconomic uncertainty, exchange rates, output, and interest rates exhibit important variation in our sample. Our data consists of a panel of store-level prices for a wide variety of products for the 1996-2008 period. The long price quote lines in our sample allow us to construct time series of price-setting statistics and relate them to macroeconomic variables.

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