Markups Under Uncertainty. Variations on Price Decisions in High Inflation

FRANCISCO ROLDÁN; CARLOS DANIEL HEYMANN

Macroeconomics and Development. Roberto Frenkel and the Economics of Latin America

Columbia University Press

Año: 2016; p. 23 - 46

The celebrated article by Roberto Frenkel (1979) on price setting in high inflation was a pioneering contribution to the analysis of the mechanisms and effects of macroeconomic instability. It remains exemplary in several respects. First, it considered facts of daily experience (actually drawn from the concerns and behavior of participants in real market games) and searched for analytical frameworks to interpret them. The interest was at the same time practical and theoretical, micro- and macroeconomic: Frenkel wanted to understand certain patterns of the decision rules used by individual firms and relate them to the features of the inflationary regime of the time, particularly regarding the uncertainty that businesses perceived about their future costs and demands. His motivation for writing the article was ?close to home,? derived from concrete observations in the Argentine economy at the time and with an eye on policy implications, but the discussion was carried out on a general level and sought conclusions beyond the specificities of a narrow case. The argument used a problem-driven approach, where the analytical setup and behavioral assumptions were chosen by focusing on the issues at hand.