Sticky Prices: The Impact of Regulation

Journal of Monetary Economics, 49 (2002) 797-821

34 Pages Posted: 18 Sep 2015

See all articles by Albert S. Dexter

Albert S. Dexter

University of British Columbia (UBC) - Sauder School of Business

Maurice D. Levi

University of British Columbia (UBC) - Sauder School of Business

Barrie R. Nault

University of Calgary - Haskayne School of Business

Date Written: May 20, 2015

Abstract

This paper finds that approximately one-third of the items in the CPI are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions. Consequently, regulation is a possible partial explanation of sticky prices in the overall rate of inflation, and delayed response to changes in the money supply. A survey is used to decompose the CPI into freely determined and regulated sub-components. Evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely determined sector, thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy.

Keywords: Price stickiness, Money supply, Granger causation, Impulse response

Suggested Citation

Dexter, Albert S. and Levi, Maurice David and Nault, Barrie R., Sticky Prices: The Impact of Regulation (May 20, 2015). Journal of Monetary Economics, 49 (2002) 797-821, Available at SSRN: https://ssrn.com/abstract=2608673

Albert S. Dexter

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8385 (Phone)

Maurice David Levi

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Henry Angus 865
Vancouver BC V6T 1Z2
Canada
604-822-8260 (Phone)
604-822-8521 (Fax)

Barrie R. Nault (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

HOME PAGE: http://ucalgary.ca/bnault

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