Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/83607 
Year of Publication: 
2013
Series/Report no.: 
MNB Working Papers No. 2013/2
Publisher: 
Magyar Nemzeti Bank, Budapest
Abstract: 
We show that in both time-dependent and state-dependent sticky price models, prices of sticky price products (i.e. whose price changes rarely) contain more information about medium term inflation developments than those of flexible price products (i.e. whose price changes frequently). We do this by establishing a novel measure for the extent of forwardlookingness of newly set prices, and showing that it is at least 60% when the monthly price change frequency is less than 15%. This result is robust across various sticky price models. On the empirical front, we show that the Hungarian sticky price inflation index indeed has a forward-looking component, as it has favorable inflation forecasting properties on the policy horizon of 1-2 years to alternative inflation indicators (including core inflation). Both theoretical and empirical results suggest that the sticky price inflation index is a useful indicator for inflation targeting central banks.
Subjects: 
sticky prices
core inflation
inflation measurement
JEL: 
E31
E37
E58
Document Type: 
Working Paper

Files in This Item:
File
Size
624.56 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.