Analysis of price rigidity on CPI data

This bachelor thesis examines price rigidity in the components of the Harmonized Index of Consumer Prices for the Czech Republic and the euro area. It also examines the causes and macroeconomic implications of price rigidities for inflation and monetary policy. First, theoretical approaches to inflation, the concept of inflation expectations and the Phillips curve are presented. Then, the existing knowledge on price rigidities and methods of their measurement as well as their macroeconomic implications are summarized. The analysis itself is carried out using ARMA models for the time series of price growth between 2002 and 2019. Based on the comparison of impulse response functions, higher price rigidities are found in the euro area than in the Czech Republic except for two categories, namely energy prices and prices of goods excluding energy. From the results of the analysis, we conclude that, barring an energy or goods price shock, the CNB should respond with a more vigorous monetary policy than the ECB in the event of the same price shock. For these two categories, the opposite is true.