DIFFERING DEGREE OF PRICE FLEXIBILITIES AND THE POLICY INEFFECTIVENESS PROPOSITION

Price regulations impart stickiness to prices. The degree of response is analysed for three CPI subindex inflations - freely determined, reg ulated and mixed prices - and of aggregate CPI inflation to anticipate d and unanticipated monetary policies. Freely determined prices and ag gregate CPI show similar responses but faster and larger adjustments t han regulated prices to anticipated monetary policies. The results imp ly that the extent to which monetary policies can influence prices dep ends on the degree of price inertia in various sectors. For monetary a uthorities to control inflation effectively, they need to focus on pri ce movements in various sectors.