How Frequently Do Prices Change? State-dependent or Timedependent Pricing: Does it Matter for Monetary Policy in Pakistan?
Authors
TALAH NUMAN KHAN and WASIM SHAHID MALIK
Abstract
One of the basic differences between Classical and Keynesian economists were on the is the wages and price adjustment following changes in economy. This issue is practically important for the effectiveness of monetary policy. This is pioneer study on this topic. The study finds the price flexibility and price setting behavior using the larger data sets of aggregate and disaggregate consumer price index (CPI) from 1991-07 to 2020-06 by duration, frequency, size of price change and panel logit random effect model. CPI in Pakistan shows some degree of price flexibility but not fully flexible. Regulated products are less flexible as compared to unregulated products. Furthermore, prices confirmed the Keynesians models that prices are downward rigid and upward flexible. Pakistan’s firms are using the combination of state and time dependent pricing policy.
