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Price rigidity. Evidence from the French CPI micro-data

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  • Baudry, Laurent
  • Le Bihan, Hervé
  • Sevestre, Patrick
  • Tarrieu, Sylvie

Abstract

Based upon a large fraction of the price records used for computing the French CPI, we document consumer price rigidity in France. We first provide a methodological discussion of issues involved in estimating average price duration with micro-data. The average duration of prices in the sectors covered by the database (65% of CPI) is then found to be around 8 months. A strong heterogeneity across sectors both in the average duration of prices and in the pattern of price setting is reported. There is no clear evidence of downward nominal rigidity, since price cuts are almost as frequent as price rises. Moreover, the average size of a change in price is quite large in both cases. Overall, while our results do not entail a clear conclusion about the existence of menu costs, there is evidence of both time-dependent and state-dependent price setting behaviors by retailers. JEL Classification: E31, D43, L11

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Paper provided by European Central Bank in its series Working Paper Series with number 0384.

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Date of creation: Aug 2004
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Handle: RePEc:ecb:ecbwps:20040384

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Keywords: consumer price index; duration of prices; frequency of price change; Price stickiness;

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  1. Alexander L. Wolman, 2007. "The frequency and costs of individual price adjustment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 531-552.
  2. David Genesove, 1999. "The Nominal Rigidity of Apartment Rents," NBER Working Papers 7137, National Bureau of Economic Research, Inc.
  3. Dias, Mónica & Dias, Daniel & Neves, Pedro D., 2004. "Stylised features of price setting behaviour in Portugal: 1992-2001," Working Paper Series 0332, European Central Bank.
  4. 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, vol. 100(2), pages 349-89, April.
  5. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
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