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Lumpy Price Adjustments, A Microeconometric Analysis

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  • Dhyne, E.
  • Fuss, C.
  • Pesaran, H.
  • Sevestre, P.

Abstract

This paper presents a simple model of state-dependent pricing that allows identification of the relative importance of the degree of price rigidity that is inherent to the price setting mechanism (intrinsic) and that which is due to the price.s driving variables (extrinsic). Using two data sets consisting of a large fraction of the price quotes used to compute the Belgian and French CPI, we are able to assess the role of intrinsic and extrinsic price stickiness in explaining the occurrence and magni- tude of price changes at the outlet level. We .nd that infrequent price changes are not necessarily associated with large adjustment costs. Indeed, extrinsic rigidity appears to be significant in many cases. We also find that asymmetry in the price adjustment could be due to trends in marginal costs and/or desired mark-ups rather than asymmetric cost of adjustment bands.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0719.

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Length: 29
Date of creation: Apr 2007
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Handle: RePEc:cam:camdae:0719

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Related research

Keywords: Sticky prices; nominal intrinsic and extrinsic rigidities; micro non-linear panels.;

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References

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Citations

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Cited by:
  1. Denis FOUGERE & Erwan GAUTIER & Hervé LE BIHAN, 2009. "Restaurant Prices and the Minimum Wage," Working Papers 2009-13, Centre de Recherche en Economie et Statistique.
  2. Gautier, E. & Le Saout, R., 2012. "The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data," Working papers 375, Banque de France.
  3. Heckel, T. & Le Bihan, H. & Montornès, J., 2008. "Sticky Wages. Evidence from Quarterly Microeconomic Data," Working papers 208, Banque de France.
  4. Bo E. Honoré & Daniel Kaufmann & Sarah Lein, 2012. "Asymmetries in Price‐Setting Behavior: New Microeconometric Evidence from Switzerland," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 211-236, December.
  5. Loupias, C. & Sevestre, P., 2010. "Costs, demand, and producer price changes," Working papers 273, Banque de France.
  6. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 380, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  7. Lein, Sarah M., 2010. "When do firms adjust prices? Evidence from micro panel data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 696-715, September.
  8. Gautier, E., 2008. "Les ajustements microéconomiques des prix : une synthèse des modèles théoriques et résultats empiriques," Working papers 211, Banque de France.
  9. Thomas A. Eife, 2008. "Do Menu Costs Make Prices Sticky?," Working Papers 0477, University of Heidelberg, Department of Economics, revised Oct 2008.
  10. Marcelo Sánchez, 2011. "Oil shocks and endogenous markups: results from an estimated euro area DSGE model," International Economics and Economic Policy, Springer, vol. 8(3), pages 247-273, September.

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