Conference Paper
How Prices Change in a High-Inflation Economy: Evidence for Menu Cost Models
No.
ERF32AC_226
Publisher
ERF
Date
May, 2026
Topic
E3. Prices, Business Fluctuations, and Cycles
E5. Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper provides evidence on two features of menu-cost pricing in a high-inflation economy. Using Iranian consumer price quotes from 2006–2022 and generalizing the inflation decomposition method from Klenow and Kryvtsov (2008), we find that 78% of the variance of inflation is explained by the covariance between the frequency and the size of price changes, while the frequency and the size margins on their own are comparatively small. The results suggest that aggregate shocks and selection are central to price adjustment in high inflation and help distinguish among menu-cost models in high-inflation environments.
Authors
Hamidreza Aziminia
PhD Candidate, Sharif University of Technology
Authors
Seyed Ali Madanizadeh
Associate Professor, Sharif University of Technology
Authors
Amineh Mahmoudazdeh
Assistant Professor, Sharif University of Technology