Four Key Facts of Price Changes during High Inflation in Korea and Their Implications
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This paper examines how Korean firms adjusted their pricing strategies during the postpandemic high-inflation period using microdata on goods. We document four key patterns: (1) a sharp rise in the frequency of price adjustments, (2) stability in the size of individual price changes, (3) greater use of temporary discounts, and (4) wider price dispersion across outlets. These findings indicate that frequency adjustments were the dominant margin of price setting under high inflation. To assess macroeconomic implications, we incorporate this evidence into a DSGE framework with a time-varying Calvo parameter. The model shows that inflation-dependent adjustment frequencies amplify inflationary dynamics and alter policy trade-offs, underscoring the importance of embedding empirically grounded pricing behavior into policy analysis.
Abstract
This paper examines how Korean firms adjusted their pricing strategies during the postpandemic high-inflation period using microdata on goods. We document four key patterns: (1) a sharp rise in the frequency of price adjustments, (2) stability in the size of individual price changes, (3) greater use of temporary discounts, and (4) wider price dispersion across outlets. These findings indicate that frequency adjustments were the dominant margin of price setting under high inflation. To assess macroeconomic implications, we incorporate this evidence into a DSGE framework with a time-varying Calvo parameter. The model shows that inflation-dependent adjustment frequencies amplify inflationary dynamics and alter policy trade-offs, underscoring the importance of embedding empirically grounded pricing behavior into policy analysis.