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The price setting behaviour of Portuguese firms - evidence from survey data

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Author Info
Fernando Martins () (Banco de Portugal (Research Department) and Universidade Lusíada de Lisboa,Av. Almirante Reis, 71,1150-012 Lisbon, Portugal;)

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Abstract

This paper analyses the results of a survey conducted by the Banco de Portugal with the main purpose of investigating firms’ price setting behaviour. The evidence points to the presence of a considerable degree of price stickiness, which seems to be higher in services than in manufacturing. The presence of implicit contracts between firms and their customers under which the former pledge to stabilise their prices as a way to increase customers’ loyalty is apparently the main reason that prevents firms from changing their prices more promptly. Other relevant sources of price stickiness were also found: coordination problems arising from the preference of firms not to change their prices unless their competitors do so, the constraint imposed by a high share of fixed costs, marginal costs that vary little when costs are an important determinant in pricing decisions or the presence of formal contracts that are costly to renegotiate.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 562.

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Length: 53 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050562

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Related research
Keywords: Inflation persistence price-setting behaviour and survey data.

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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
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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. John B. Taylor, 1980. "Aggregate Dynamics and Staggered Contracts," NBER Reprints 0126, National Bureau of Economic Research, Inc.
    Other versions:
  2. 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.
  3. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Discussion Paper Series 1: Economic Studies 2005,43, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  4. Claudia Kwapil & Josef Baumgartner & Johann Scharler, 2005. "The price-setting behavior of Austrian firms - some survey evidence," Working Paper Series 464, European Central Bank. [Downloadable!]
    Other versions:
  5. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Price setting behaviour in Spain: evidence from micro PPI data," Working Paper Series 522, European Central Bank. [Downloadable!]
  6. 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 Series 524, European Central Bank. [Downloadable!]
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  7. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2001. "Micro Foundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Working Paper Series 128, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  8. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Price setting behaviour in Spain: evidence from micro PPI data," Banco de España Working Papers 0527, Banco de España. [Downloadable!]
  9. Luc Aucremanne & Martine Druant, 2005. "Price-setting behaviour in Belgium - what can be learned from an ad hoc survey?," Working Paper Series 448, European Central Bank. [Downloadable!]
  10. Luc Aucremanne & Martine Druant, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey ?," Research series 200503-1, National Bank of Belgium. [Downloadable!]
  11. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
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  12. Luis J. Álvarez & Ignacio Hernando, 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Banco de España Working Papers 0537, Banco de España. [Downloadable!]
  13. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
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  14. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 183-203, April. [Downloadable!] (restricted)
    Other versions:
  15. Luis J. Álvarez & Ignacio Hernando, 2005. "The price setting behaviour of spanish firms - evidence from survey data," Working Paper Series 538, European Central Bank. [Downloadable!]
  16. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July. [Downloadable!] (restricted)
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  17. Claire Loupias & Roland Ricart, 2004. "Price setting in France: new evidence from survey data," Working Paper Series 423, European Central Bank. [Downloadable!]
Full references

Cited by:
(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. S. Fabiani & M. Druant & I. Hernando & C. Kwapil & B. Landau & C. Loupias & F. Martins & T. Mathä & R. Sabbatini & H. Stahl & A. Stokman, 2005. "The pricing behaviour of firms in the euro area : new survey evidence," Research series 200511-1, National Bank of Belgium. [Downloadable!]
    Other versions:
  2. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September. [Downloadable!]
    Other versions:
  3. Patrick Lünnemann & Thomas Mathä, 2006. "New survey evidence on the pricing behaviour of Luxembourg firms," BCL working papers cahier_etude_19, Central Bank of Luxembourg. [Downloadable!]
    Other versions:
  4. Aurelijus Dabušinskas & Martti Randveer, 2006. "Comparison of pricing behaviour of firms in the euro area and Estonia," Bank of Estonia Working Papers 2006-08, Bank of Estonia, revised 10 Dec 2006. [Downloadable!]
  5. Luis J. Álvarez, 2007. "What do micro price data tell us on the validity of the New Keynesian Phillips Curve?," Banco de España Working Papers 0728, Banco de España. [Downloadable!]
  6. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Discussion Paper Series 1: Economic Studies 2005,43, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
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