The Threshold Reaction of Price Setting Behavior Indexes to Inflation Rate Changes: An Application of Price Micro Information to Understand the Changes of Price Rigidity Degree

In this paper we measure the price stickiness in Iran’s economy. More specifically, we use sub-aggregates data of consumer price index from 1990:3 to 2014:2 to investigate the analyze the frequency and size of price changes and test whether they are affected from the CPI variations. This is important as it determined how much the monetary authority can expect to have influence on the real economy in the short term. We find that price changes happen very frequently in the Iran’s economy averaged approximately around three months. We also find a positive correlation between the frequency and size of the price changes and the inflation rate, where there is a difference between low and high inflation rates. Moreover, we find that in contrast to goods with prices determined in the market, the price regulated goods have no significant relationship with inflation.