Abstract

JULIO, Juan Manuel. Observed And Unobserved Heterogeneity in the Price Setting Behavior of Colombian Consumer Prices. Ens. polit. econ. [online]. 2010, vol.28, n.63, pp.66-99. ISSN 0120-4483.

The pricing rules of colombian retailers of goods and services are characterized through hazard functions. Special attention is given to reducing the bias arising from observed and unobserved heterogeneity on these functions. The effect of observed heterogeneity is reduced by estimating the hazard at the highest disaggregation, through stratified estimation, by including state variables as regresores, and by estimating separate hazards for price increases and reductions. The effect of unobserved heterogeneity is reduced by adding a random effects term known as frailty, which permits two retailers from the same strata to have different price spell durations. The database under analysis contains 12'052.970 price records and covers a time span in which the CPI inflation decreases and then increases, which makes it ideal to study the presence of menu costs.

Keywords : price setting behavior; price stickiness; duration models; hazard function.

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