Abstract
I document the frequency and size of price adjustments using thirty years of monthly data covering both high- and low-inflation periods. Prices increase more frequently in smaller amounts when inflation is high, and less frequently but in larger amounts when inflation is low. A novel decomposition of the inflation rate shows that when inflation is high and volatile the frequency of price changes is more important for the variation in inflation than is the magnitude of price changes. When inflation is low and stable the magnitude of the price changes is more important. Monetary policy analysis assuming an exogenous probability of changing prices are thus subject to the Lucas critique.
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