NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflationary Expectations and Price Setting Behavior

Ray C. Fair

NBER Working Paper No. 3102
Issued in September 1989
NBER Program(s):   EFG

This paper tests for the existence of expectational effects in very disaggregate price equations. Price equations are estimated using monthly data for each of 40 products. The dynamic specification of the equations is also tested, including whether the equations should be specified in level form or in change form. Two expectational hypotheses are used, one in which expectations of the aggregate price level are a function of the past values of the price level and one in which expectations are rational. Under the first hypothesis the lag length is estimated along with the other parameters, and under the second hypothesis the lead length is estimated along with the other parameters. The results strongly support the hypothesis that aggregate price expectations affect individual pricing decisions. The results do not discriminate very well between the level and change forms of the price equation, although there is a slight edge for the level form. The lag and lead lengths are not estimated precisely, but in most cases the lag length is less than 30 months and the lead length is less than 5 months.

download in pdf format
   (207 K)

download in djvu format
   (168 K)

email paper

This paper is available as PDF (207 K) or DjVu (168 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3102

Published: Review of Economics and Statistics, Vol. 75, no. 1 (1993): 8-18.

Users who downloaded this paper also downloaded these:
Barro w0889 Inflationary Finance under Discrepion and Rules
Blanchflower and MacCoille w15388 The formation of inflation expectations: an empirical analysis for the UK
Mankiw, Reis, and Wolfers w9796 Disagreement about Inflation Expectations
Farmer w18007 The Effect of Conventional and Unconventional Monetary Policy Rules on Inflation Expectations: Theory and Evidence
Orphanides and Williams w17080 Monetary Policy Mistakes and the Evolution of Inflation Expectations
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us