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Micro Evidence on the Adjustment of Sticky-Price Goods: It's How Often, Not How Much

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  • Götte, Lorenz
  • Minsch, Rudolf
  • Tyran, Jean-Robert

Abstract

We use a unique panel data set to analyse price setting in restaurants in Switzerland 1977-93, for items known to have sticky prices. The macroeconomic environment during this time period allows us to examine how firms adjust prices at low (0%) and fairly high (7%) inflation. Our results indicate that firms strongly react to inflation in the timing of their price adjustment: hazard of price changes is increasing with time and becomes steeper at higher inflation rates. However, we find little evidence that the amount by which they change the price responds to the inflation rate.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5364.

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Date of creation: Dec 2005
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Handle: RePEc:cpr:ceprdp:5364

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Keywords: inflation; nominal inertia; sticky prices;

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References

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  1. Julio J. Rotemberg, 2011. "Fair Pricing," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 9(5), pages 952-981, October.
  2. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(2), pages 349-89, April.
  3. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  4. Lach, Saul & Tsiddon, Daniel, 1996. "Staggering and Synchronization in Price-Setting: Evidence from Multiproduct Firms," American Economic Review, American Economic Association, vol. 86(5), pages 1175-96, December.
  5. Eden, Benjamin, 1993. "Inflation and Price Adjustment: An Analysis of Micro Data," Working Papers, University of Iowa, Department of Economics 94-13, University of Iowa, Department of Economics, revised 1994.
  6. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(4), pages 703-725, May.
  7. Anil K Kashyap, 1994. "Sticky Prices: New Evidence from Retail Catalogs," NBER Working Papers 4855, National Bureau of Economic Research, Inc.
  8. 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.
  9. Julio J. Rotemberg, 2002. "Customer Anger at Price Increases, Time Variation in the Frequency of Price Changes and Monetary Policy," NBER Working Papers 9320, National Bureau of Economic Research, Inc.
  10. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1997. "State-dependent pricing and the dynamics of business cycles," Working Paper, Federal Reserve Bank of Richmond 97-02, Federal Reserve Bank of Richmond.
  11. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, Elsevier, vol. 31(3), pages 255-274, April.
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Cited by:
  1. Julio J. Rotemberg, 2008. "Behavioral Aspects of Price Setting, and Their Policy Implications," NBER Working Papers 13754, National Bureau of Economic Research, Inc.
  2. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1415-1464, November.
  3. Julio J. Rotemberg, 2009. "Altruistic Dynamic Pricing with Customer Regret," NBER Working Papers 14933, National Bureau of Economic Research, Inc.
  4. Daniel Kaufmann, 2009. "Price-Setting Behaviour in Switzerland: Evidence from CPI Micro Data," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 145(III), pages 293-349, September.
  5. Denis Fougere & Erwan Gautier & Herve Le Bihan, 2010. "Restaurant Prices and the Minimum Wage," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 42(7), pages 1199-1234, October.
  6. James Yetman, 2009. "Hong Kong Consumer Prices are Flexible," Working Papers 052009, Hong Kong Institute for Monetary Research.
  7. Kevin D. Sheedy, 2007. "Intrinsic inflation persistence," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3739, London School of Economics and Political Science, LSE Library.
  8. Gautier, E., 2008. "Les ajustements microéconomiques des prix : une synthèse des modèles théoriques et résultats empiriques," Working papers, Banque de France 211, Banque de France.
  9. Fang Yao, 2009. "Non-constant Hazard Function and Inflation Dynamics," SFB 649 Discussion Papers SFB649DP2009-030, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. Fang Yao, 2009. "The Cost of Tractability and the Calvo Pricing Assumption," SFB 649 Discussion Papers SFB649DP2009-042, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  11. Simone Elmer & Thomas Maag, 2009. "The Persistence of Inflation in Switzerland: Evidence from Disaggregate Data," KOF Working papers 09-235, KOF Swiss Economic Institute, ETH Zurich.

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