Consumer Price Stickiness In China: Evidence From Micro Data

As the base argument of new Keynesian Economics, the price stickiness plays akey role in macroeconomic system. By measuring the price stickiness of differentcommodity categories, identifying the market prices belong to the time-dependentpricing or state-dependent pricing, and clarifying the relationship between pricestickiness and inflation persistence. These can help to understand the extent of themarket and firms behaviors, analysis the impact of monetary policy on industry prices,reasonable construct the China DSGE model, and provide micro evidence forgovernment’s industries reforming and formulating relevant economic policies. Thispaper selected the36major Chinese urban residents of consumer price monthlymonitoring data as the research sample，which was published by the State CouncilDevelopment and Reform Commission monitoring center. Firstly, this paperclassified the consumer price into six categories, namely non-processed foods,processed foods, non-durable goods, durable goods, non-regulated services andregulated services. Then we estimated the extent of China’s consumer price stickiness,containing general and six categories’ frequency of price changes, the frequency ofupward and downward price changes, the size of price changes, the size of upwardand downward price changes. Secondly, the regression models and inflationdecomposition proofed that China’s consumer price have TDP and SDP model, andfurther inspected the proportions of pricing model in six categories. Finally, we usedthe unit root test and unit root counting method to estimate the inflation persistence,by cross-sectional regressions and Logit model to analyze the relationship betweenprice stickiness and inflation persistent. The main conclusions were as follows:First, the total price adjustment frequency was0.68, the frequency of upward(0.43) was greater than downward price changes (0.25). The consumer pricestickiness exist heterogeneity, the situation was easy to rise but difficult to drop.Non-processed foods and durable goods prices changed fast, followed by non-durablegoods and processed foods, while non-regulated services and regulated services pricechanged slowly. The size of price change varied in different sectors, Non-processed foods prices adjust more frequently among the great magnitude, processed food andservice focused on changes in the magnitude of1%.Second, China’s consumer price existed the time-dependent pricing andstate-dependent pricing modes. Price setting behavior corresponded to the extent ofmarket. China Market Price subjected to SDP model, especially the processed foodprices, indicated that food sectors were more market-oriented and competitive. Theservices prices belonged to the TDP models, indicating that a low degree of market,and the existence of market failure.Third, inflation persistence was different by different price setting behaviors. Inservice departments, price stickiness was positive with inflation persistence. However,price stickiness and inflation persistence remained negative correlation in non-servicedepartments.