Price Setting in Pakistan: Evidence from Micro SPI Dataset

An accredited fact in macroeconomics states that prices of commodities as well as services do not essentially change instantaneously in response to economic shocks, rather, evident an interval of unadjusted period. For the presence of such inflexibility, numerous facts and reasons are identified in the literature. The paper thus aims to investigate the price change mechanism inthe case of Pakistan.A widely used technique recognized as Duration Analysis is employed in the study.A Non-parametric estimation methodknown as the Kaplan-Meier estimator is used for estimating Survivorship function and hazard function.The study found that processed food and perishable food items have the shortest duration of spells. Staple food items and cooking oil & ghee are characterized as having spells of intermediate durations. While clothing & footwear, cigarettes, and cooked food reveal long-standing spells. Results show that on the aggregated level, the hazard rate is highest at the shorter duration of spells.Literature exploring the pricing mechanism started in developed countries since the evolution of the issue.Thevast literature for developed countries proves that the issue of price stickiness is important in terms of policy implications. Despite this, developing countries like Pakistan are lagged far behind.Hence, this study is the foremost attempt to analyze the price-setting mechanismby employing micro-level price statistics