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The price setting behaviour of Spanish firms: evidence from survey data

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  • Luis J. Álvarez

    ()
    (Banco de España)

  • Ignacio Hernando

    ()
    (Banco de España)

Abstract

This paper reports the results of a survey carried out by the Banco de España on a sample of around 2000 Spanish firms to deepen the understanding of firms' price setting behaviour. The main findings may be summarised as follows. Most Spanish firms are price setters that use predominantly state dependent rules or a combination of time and state dependent rules when reviewing their prices. Changes in costs are the main factor underlying price increases, whereas changes in market conditions (demand and competitors' prices) are the main driving forces of price decreases. The degree of price flexibility is directly related to the share of energy inputs over total costs and to the intensity of competition, whereas it is inversely linked to the labour share. The three theories of price stickiness that receive the highest empirical support are implicit contracts, coordination failure and explicit contracts.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0537e.pdf
File Function: First version, October 2005
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0537.

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Length: 69 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:bde:wpaper:0537

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Keywords: price setting; price stickiness; survey data;

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  1. Fabiani, Silvia & Druant, Martine & Hernando, Ignacio & Kwapil, Claudia & Landau, Bettina & Loupias, Claire & Martins, Fernando & Matha, Thomas & Sabbatini, Roberto & Stahl, Harald & Stokman, Ad, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," MPRA Paper 808, University Library of Munich, Germany.
  2. Kwapil, Claudia & Baumgartner, Josef & Scharler, Johann, 2005. "The price-setting behavior of Austrian firms: some survey evidence," Working Paper Series, European Central Bank 0464, European Central Bank.
  3. Emmanuel Dhyne & Luis J. Álvarez & Hervé Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lünnemann & Fabio Rumler & Jouko Vilmunen, 2005. "Price setting in the euro area: Some stylized facts from Individual Consumer Price Data," Working Paper Research, National Bank of Belgium 74, National Bank of Belgium.
  4. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2005. "The pricing behaviour of firms in the Euro area: new survey evidence," Banco de Espa�a Working Papers, Banco de Espa�a 0536, Banco de Espa�a.
  5. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Macroeconomics, EconWPA 0402020, EconWPA.
  6. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  7. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  8. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
  9. Fabiani, Silvia & Gattulli, Angela & Sabbatini, Roberto, 2004. "The pricing behaviour of Italian firms: new survey evidence on price stickiness," Working Paper Series, European Central Bank 0333, European Central Bank.
  10. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Working Paper Series, European Central Bank 0561, European Central Bank.
  11. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers, Bank of England 67, Bank of England.
  12. Alan S. Blinder, 1991. "Why are Prices Sticky? Preliminary Results from an Interview Study," NBER Working Papers 3646, National Bureau of Economic Research, Inc.
  13. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
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  15. Aucremanne, Luc & Druant, Martine, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey?," Working Paper Series, European Central Bank 0448, European Central Bank.
  16. repec:nbr:nberre:0126 is not listed on IDEAS
  17. Marc Giannoni & Michael Woodford, 2004. "Optimal Inflation-Targeting Rules," NBER Chapters, National Bureau of Economic Research, Inc, in: The Inflation-Targeting Debate, pages 93-172 National Bureau of Economic Research, Inc.
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  19. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
  20. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(2), pages 313-38, April.
  21. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
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  23. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
  24. Rotemberg, Julio J., 2005. "Customer anger at price increases, changes in the frequency of price adjustment and monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(4), pages 829-852, May.
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  26. Martin, Christopher, 1993. "Price adjustment and market structure," Economics Letters, Elsevier, Elsevier, vol. 41(2), pages 139-143.
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