ELASTICITY OF CONSUMER PRICES IN POLAND

Nominal rigidities are the central feature o f the New Keynesian Economics. Recently, models employing this assumption have become very popular among academic economists and central bankers. By re-arranging the Calvo pricing mechanism into an AR(1) model, the author estimated and calculated the probability of the price change and the mean time between price changes. To achieve that the aggregated monthly CPI and the series of 26 prices of consumer goods and services was employed. The results obtained for the whole sample (1990-2006) support Kashyaps hypothesis that the price elasticity is a function of inflation: the calculated probability of the price change was much higher in the first half of the 1990s. Since the 1999, the consumer prices in Poland have been moderately stable, with the probability o f a price change in the following month being 11.3%, and the mean time of the prices remaining unchanged averaging 8 months