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Lumpy Price Adjustments, A Microeconometric Analysis

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Author Info
Dhyne, E.
Fuss, C.
Pesaran, H.
Sevestre, P.

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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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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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Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Microeconomic Data
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas A. Eife, 2008. "Do Menu Costs Make Prices Sticky?," Working Papers 0477, University of Heidelberg, Department of Economics, revised Oct 2008. [Downloadable!]
  2. Fougère, Denis & Gautier, Erwan & Le Bihan, Hervé, 2009. "Restaurant Prices and the Minimum Wage," IZA Discussion Papers 4070, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Nancy Masschelein, 2007. "Monitoring pro-cyclicality under the capital requirements directive : preliminary concepts for developing a framework," Documents series 200711-22, National Bank of Belgium. [Downloadable!]
  4. Annick Bruggeman, 2007. "Can Excess Liquidity Signal an Asset Price Boom?," Research series 200708-08, National Bank of Belgium. [Downloadable!]
  5. François Coppens & Fernando Gonzáles & Gerhard Winkler, 2007. "The performance of credit rating systems in the assessment of collateral used in Eurosystem monetary policy operations," Research series 200710-12, National Bank of Belgium. [Downloadable!]
    Other versions:
  6. Frédéric Lagneaux, 2008. "Economic Importance of Belgian Transport Logistics," Documents series 200801-01, National Bank of Belgium. [Downloadable!]
  7. Gautier, E., 2008. "Les ajustements microéconomiques des prix : une synthèse des modèles théoriques et résultats empiriques," Documents de Travail 211, Banque de France. [Downloadable!]
  8. Sarah M. Rupprecht, 2007. "When Do Firms Adjust Prices? Evidence from Micro Panel Data," KOF Working papers 07-160, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  9. Rafal Raciborski, 2008. "Searching for additional sources of inflation persistence : the micro-price panel data approach," Research series 200804-04, National Bank of Belgium. [Downloadable!]
  10. Carine Swartenbroekx, 2007. "The gas chain : influence of its specificities on the liberalisation process," Documents series 200711-24, National Bank of Belgium. [Downloadable!]
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