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Price setting behaviour in Spain: stylised facts using consumer price micro data

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Author Info
Luis J. Álvarez () (Banco de España, Alcalá 48, 28014 Madrid, Spain.)
Ignacio Hernando () (Banco de España, Alcalá 48, 28014 Madrid, Spain.)

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Abstract

This paper identifies the basic features of the price setting mechanism in the Spanish economy, using a large dataset that contains over 1.1 million price records and covers around 70% of the expenditure on the CPI basket. In particular, the paper identifies differences in the frequency and size of price adjustments across types of products and explores how these general features are affected by certain specific factors: seasonality, the level of inflation, changes in indirect taxation and the practice of using psychological and round prices. We find that prices do not change often but do so by a large amount, although there is a marked heterogeneity across products. Moreover, the high frequency of price reductions suggests that there is no strong downward rigidity. Our evidence also supports the use of time and state-dependent pricing strategies.

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Paper provided by European Central Bank in its series Working Paper Series with number 416.

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Length: 59 pages
Date of creation: Nov 2004
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Handle: RePEc:ecb:ecbwps:20040416

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Related research
Keywords: Price setting; consumer prices; frequency of price changes.;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
D40 - Microeconomics - - Market Structure and Pricing - - - General
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models

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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.:
  1. 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. [Downloadable!] (restricted)
  2. Luc Aucremann & David Cornille, 2001. "Attractive prices and euro-rounding effects on inflation," Documents series 200111, National Bank of Belgium. [Downloadable!]
  3. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 225-38, January. [Downloadable!] (restricted)
  4. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Schindler, Robert M & Kirby, Patrick N, 1997. " Patterns of Rightmost Digits Used in Advertised Prices: Implications for Nine-Ending Effects," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 24(2), pages 192-201, September.
  6. Aucremanne, L. & Cornille, D., 2001. "Attractive Prices and Euro-Rounding Effects on Inflation," Papers 17, Warwick - Development Economics Research Centre.
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(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. Giovanni Veronese & Silvia Fabiani & Roberto Sabbatini, 2005. "Consumer price behaviour in Italy - evidence from micro CPI data," Working Paper Series 449, European Central Bank. [Downloadable!]
  2. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Do decreasing hazard functions for price changes make any sense?," Working Paper Series 461, European Central Bank. [Downloadable!]
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  3. Babutsidze, Zakaria, 2006. "(S,s) Pricing: Does the Heterogeneity Wipe Out the Asymmetry on Micro Level?," UNU-MERIT Working Paper Series 033, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
  4. Eduardo Levy Yeyati, 2005. "Financial Dollarisation: Evaluating The Consequences," Business School Working Papers findollarisation, Universidad Torcuato Di Tella. [Downloadable!]
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  5. Juan Pablo Medina & David Rappoport & Claudio Soto, 2007. "Dynamics of Price Adjustments: Evidence From Micro Level Data for Chile," Working Papers Central Bank of Chile 432, Central Bank of Chile. [Downloadable!]
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  6. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area : a summary of the Inflation Persistence Network evidence," Research series 200610-7, National Bank of Belgium. [Downloadable!]
  7. Tillmann, Peter, 2005. "The New Keynesian Phillips Curve in Europe : does it fit or does it fail?," Discussion Paper Series 1: Economic Studies 2005,04, Deutsche Bundesbank, Research Centre. [Downloadable!]
  8. Jerzy (Jurek) D. Konieczny & Fabio Rumler, 2006. "Regular adjustment - theory and practice," Working Paper Series 669, European Central Bank. [Downloadable!]
  9. Denis Fougère & Hervé Le Bihan & Patrick Sevestre, 2005. "Heterogeneity in consumer price stickiness - a microeconometric investigation," Working Paper Series 536, European Central Bank. [Downloadable!]
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  10. Samu Kurri, 2007. "Price changes in Finland: some evidence from micro CPI data," Working Paper Series 728, European Central Bank. [Downloadable!]
  11. Barry Eichengreen, 2007. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," Open Economies Review, Springer, vol. 18(1), pages 27-52, February. [Downloadable!] (restricted)
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  12. Josef Baumgartner & Ernst Glatzer & Fabio Rumler & Alfred Stiglbauer, 2006. "Patterns and Determinants of Price Changes: Analysing Individual Consumer Prices in Austria," WIFO Working Papers 277, WIFO. [Downloadable!]
  13. Barbara Fritz & Laurissa Mühlich, 2006. "Regional Monetary Integration among Developing Countries: New Opportunities for Macroeconomic Stability beyond the Theory of Optimum Currency Areas?," GIGA Working Paper Series 38, GIGA German Institute of Global and Area Studies. [Downloadable!]
  14. J. Konieczny, F. Rumler, 2006. "Regular Adjustment - Theory and Evidenc," Working Papers eg0055, Wilfrid Laurier University, Department of Economics, revised 2006. [Downloadable!]
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  15. Vincent Brousseau & Andrés Manzanares, 2005. "A look at intraday frictions in the euro area overnight deposit market," Working Paper Series 439, European Central Bank. [Downloadable!]
  16. Eduardo Levy Yeyati, 2004. "Dollars, Debt and the IFIs: Dedollarizing Multilateral Lending," Business School Working Papers dedollmultlending, Universidad Torcuato Di Tella. [Downloadable!]
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