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State-dependent or time-dependent pricing? New evidence from a monthly firm-level survey: 1980–2017

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  • Dixon, Huw D.
  • Grimme, Christian

Abstract

We examine the relative importance of time and state dependence in the price-setting decisions of firms using a monthly panel of German firms over the period 1980–2017. We propose a refined version of time dependence by introducing different hazard functions for price increases and decreases. We find three sets of results. First, time dependence is much more important for price setting than what the previous literature has found. Second, price decreases can be well explained by time dependence alone. Price increases are best predicted by the interaction of time-dependent and firm-specific state factors. Third, time dependence for price increases and decreases look completely different from each other. Our empirical results support the notion that theoretical models should integrate both time and state dependence.

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  • Dixon, Huw D. & Grimme, Christian, 2022. "State-dependent or time-dependent pricing? New evidence from a monthly firm-level survey: 1980–2017," European Economic Review, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:eecrev:v:150:y:2022:i:c:s0014292122001994
    DOI: 10.1016/j.euroecorev.2022.104319
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    2. Balleer, Almut & Noeller, Marvin, 2023. "Monetary policy in the presence of supply constraints: Evidence from German firm-level data," Ruhr Economic Papers 1060, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Almut Balleer & Marvin Noeller, 2023. "Monetary Policy in the Presence of Supply Constraints: Evidence from German Firm-Level Data," CESifo Working Paper Series 10261, CESifo.

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    More about this item

    Keywords

    Survey data; Price setting; Extensive margin; State-dependent pricing; Time-dependent pricing;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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