Inflation in Poland under State-Dependent Pricing Cover Image

Inflation in Poland under State-Dependent Pricing
Inflation in Poland under State-Dependent Pricing

Author(s): Paweł Baranowski, Mariusz Górajski, Maciej Malaczewski, Grzegorz Szafrański
Subject(s): Economy, National Economy, Financial Markets
Published by: Ekonomický ústav SAV a Prognostický ústav SAV
Keywords: state-dependent price stickiness; Bayesian estimation; menu costs; Phillips curve; New-Keynesian DSGE

Summary/Abstract: We investigate the short-term dynamics of the Polish economy by means of a small-scale DSGE model with stochastic menu costs. We compare macroeco¬nomic evidence of price rigidity in a model with the state-dependent Phillips curve to a benchmark model with a conventional time-dependent price stickiness. With a moderate 2.3% upper boundary on menu costs the estimated state-dependent pricing model for Poland indicates a median duration of prices about 14 months, whereas the same measure of price stickiness in the time-dependent pricing model is 3 months shorter. The result from the state-dependent pricing model estimated from macro data is closer to, both, micro-price evidence, and surveys on frequen¬cy of price changes in Poland. The difference is explained by a selection effect being present in the model with state-dependent price stickiness, only. It yields more intense and impact price adjustment after a monetary policy shock.

  • Issue Year: 64/2016
  • Issue No: 10
  • Page Range: 937-957
  • Page Count: 21
  • Language: English