Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148150
Authors: 
Benedict, Craig
Crucini, Mario J.
Landry, Anthony E.
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper 2016-43
Abstract: 
In this paper, we argue that differences in the cost structures across sectors play an important role in firms' decisions to adjust their prices. We develop a menu-cost model of pricing in which retail firms intermediate trade between producers and consumers. An important facet of our analysis is that the labor-cost share of retail production differs across goods and services in the consumption basket. For example, the price of gasoline at the retail pump is predicted to adjust more frequently and by more than the price of a haircut because of the high volatility in wholesale gasoline prices relative to the wages of unskilled labor, even when both retailers face a common menu cost. This modeling approach allows us to account for some of the cross-sectional differences observed in the frequency of price adjustments across goods. We apply this model to Ecuador to take advantage of inflation variations and the rich panel of monthly retail prices.
Subjects: 
Inflation and prices
Transmission of monetary policy
JEL: 
E3
E5
F3
F33
Document Type: 
Working Paper

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