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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. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2000. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," NBER Working Papers 7981, National Bureau of Economic Research, Inc.
  2. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-66, September.
  3. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November.
  4. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
  5. 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.
  6. John B. Taylor, 1998. "Staggered Price and Wage Setting in Macroeconomics," NBER Working Papers 6754, National Bureau of Economic Research, Inc.
  7. Aucremanne, Luc & Dhyne, Emmanuel, 2004. "How frequently do prices change? Evidence based on the micro data underlying the Belgian CPI," Working Paper Series 0331, European Central Bank.
  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. 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.
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Cited by:
  1. Patrick Lünnemann & Thomas Mathä, 2005. "Consumer price behaviour in Luxembourg: evidence from micro CPI data," BCL working papers 17, Central Bank of Luxembourg.
  2. Dhyne, Emmanuel & Álvarez, Luis J. & Le Bihan, Hervé & Veronese, Giovanni & Dias, Daniel & Hoffmann, Johannes & Jonker, Nicole & Lünnemann, Patrick & Rumler, Fabio & Vilmunen, Jouko, 2005. "Price setting in the euro area: some stylized facts from individual consumer price data," Working Paper Series 0524, European Central Bank.
  3. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
  4. 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.
  5. 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.
  6. Luis J. Alvarez, 2007. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Kiel Working Papers 1330, Kiel Institute for the World Economy.
  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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