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The pricing behaviour of firms in the euro area - new survey evidence

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Author Info
Silvia Fabiani () (Corresponding author: Banca d'Italia,Via Nazionale 91, I-00184 Rome, Italy)
Claudia Kwapil () (Corresponding author: Oesterreichische Nationalbank,Otto Wagner Platz 3, A-1011 Vienna, Austria)
Martine Druant (Banque Nationale de Belgique,Boulevard de Berlaimont 14, B-1000 Brussels, Belgium)
Ignacio Hernando (Banco de España,Alcalá 50, E-28014 Madrid, Spain)
Bettina Landau () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Claire Loupias (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Dedex 01, France)
Fernando Martins (Banco de Portugal,148, Rua do Comercio, P - 1101 Lisbon Codex, Portugal)
Thomas Y. Mathä (Banque centrale du Luxembourg, 2 boulevard Royal, L - 2983 Luxembourg, Luxembourg.)
Roberto Sabbatini (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy)
Harald Stahl () (Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, D-60431 Frankfurt am Main, Germany.)
Ad C. J. Stokman (De Nederlandsche Bank,Westeinde 1, NL - 1017 ZN Amsterdam, The Netherlands)

Additional information is available for the following registered author(s):

Abstract

This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, robust across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly time-dependent pricing rules while twothirds allow for elements of state-dependence. The majority of firms take into account past and expected economic developments in their pricing decisions. Price stickiness is mainly driven by customer relationships – explicit and implicit contracts – and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.

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Paper provided by European Central Bank in its series Working Paper Series with number 535.

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Length: 47 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050535

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Related research
Keywords: Price setting; nominal rigidity; real rigidity; inflation persistence; survey data.;

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Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
D40 - Microeconomics - - Market Structure and Pricing - - - General

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References listed on IDEAS
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