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An Emprical Analysis of Price Setting Behaviour in the Netherlands in the Period 1998-2003 Using Micro Data

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  • Nicole Jonker
  • Carsten Folkertsma
  • Harry Blijenberg

Abstract

In this paper we examine pricing behaviour of retail firms in the Netherlands during 1998-2003 using alarge database with monthly price quotes of 49 articles, representing different product types. We have conducted this study in order to gain in sight in the degree of nominal rigidity of consumer prices in the Dutch economy. We find that energy prices and prices of unprocessed food are most flexible, whereas prices of services are stickiest. Our sample contains not only ample evidence of upward but also of downward flexible prices. A multivariate analysis shows that firm size matters with prices being stickiest in small retail firms and most flexible in large retail firms and in the smallest retail firms consisting of the owners only. Furthermore, we investigate pass-through effects of VAT changes in product prices. We find that VAT increases are almost completely passed on to consumers. Finally, there is some evidence indicating that, after controlling for inflation, pricing behaviour of retail firms was different during the introduction of the euro than in the period directly preceding it.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 019.

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Date of creation: Dec 2004
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Handle: RePEc:dnb:dnbwpp:019

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Keywords: nominal rigidity of prices; frequency of price change; Cox regression;

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References

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  1. Alexander L. Wolman, 1999. "Sticky prices, marginal cost, and the behavior of inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 29-48.
  2. Luc Aucremanne & Emmanuel Dhyne, 2004. "How frequently do prices change? Evidence based on the micro data underlying the Belgian CPI," Working Paper Research 44, National Bank of Belgium.
  3. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier.
  4. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
  5. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-66, September.
  6. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, vol. 93(1), pages 15-37, March.
  7. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  8. 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.
  9. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
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Cited by:
  1. Patrick Lünnemann & Thomas Y. Mathä, 2010. "Consumer price behaviour: evidence from Luxembourg micro data," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 177-192.
  2. 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 74, National Bank of Belgium.
  3. Alvarez González, Luis Julián, 2008. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(19), pages 1-36.
  4. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
  5. 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.
  6. Baumgartner, Josef & Glatzer, Ernst & Rumler, Fabio & Stiglbauer, Alfred, 2005. "How frequently do consumer prices change in Austria? Evidence from micro CPI data," Working Paper Series 0523, European Central Bank.
  7. Thomas A. Eife, 2008. "Do Menu Costs Make Prices Sticky?," Working Papers 0477, University of Heidelberg, Department of Economics, revised Oct 2008.

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