Assessing The Degree Of State Dependence In The Formation Of Prices – The Case Of Romania
This paper uses survey data on price setting patterns for Romania to assess the degree of state dependence in the formation of prices. A general model proposed in the literature is estimated and evaluated, and the results point to a superior fit of the data for the version of the model with smooth probability of price adjustment, as compared with the standard time dependent Calvo mechanism that is usually adopted in mainstream DSGE modeling literature. The degree of state dependence appears limited however, suggesting the use of the more tractable Calvo model doesn’t imply major distortions in most frameworks.
Keywords: Price stickiness, State dependent pricing, Monetary non-neutrality.