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Price setting in the euro area: some stylised facts from individual producer price data

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Author Info
Erwan Gautier () (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01.)
Ignacio Hernando () (Banco de España, Alcalá 50, E-28014 Madrid, España.)
Philip Vermeulen () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Daniel Dias () (Banco de Portugal, 148, rua do Comerico, 1150 Lisbon, Portugal.)
Maarten Dossche () (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.)
Roberto Sabbatini () (Banca dÍtalia – Research Department, Via Nazionale 91, 00184 Roma, Italy.)
Harald Stahl () (Deutsche Bundesbank, Economics Department, Wilhelm-Epstein-Strasse 14, D-60431 Frankfurt am Main, Germany.)

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Abstract

This paper documents producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. It collects evidence from available studies on each of those countries and also provides new evidence. These studies use monthly producer price data. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable nonfood and durable goods. Third, countries have a similar ranking of industries in terms of frequency of price changes. Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate. The paper also examines the factors driving producer price changes. It finds that costs structure, competition, seasonality, inflation and attractive pricing all play a role in driving producer price changes. In addition producer prices tend to be more flexible than consumer prices. JEL Classification: E31, D40, C25

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Paper provided by European Central Bank in its series Working Paper Series with number 727.

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Length: 52 pages
Date of creation: Feb 2007
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Handle: RePEc:ecb:ecbwps:20070727

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Related research
Keywords: Price-setting; producer prices;

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  1. Olli Castrén & Chiara Osbat & Matthias Sydow, 2006. "What drives investors’ behaviour in different FX market segments? A VAR-based return decomposition analysis," Working Paper Series 706, European Central Bank. [Downloadable!]
  2. Paul Levine & Peter McAdam & Joseph Pearlman, 2007. "Quantifying and sustaining welfare gains from monetary commitment," Working Paper Series 709, European Central Bank. [Downloadable!]
    Other versions:
  3. Philip Vermeulen & Daniel Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2007. "Price setting in the euro area : some stylised facts from individual producer price data," Research series 200703-30, National Bank of Belgium. [Downloadable!]
    Other versions:
  4. Juan F. Jimeno & Esther Moral & Lorena Saiz, 2006. "Structural breaks in labor productivity growth: the United States vs. the European Union," Banco de España Working Papers 0625, Banco de España. [Downloadable!]
  5. David Cornille & Maarten Dossche, 2006. "The patterns and determinants of price setting in the Belgian industry," Research series 200605-1, National Bank of Belgium. [Downloadable!]
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  6. K. C. Fung & Alicia Garcia-Herrero & Hitomi Iizaka & Alan Siu, 2005. "Hard Or Soft? Institutional Reforms And Infrastructure Spending As Determinants Of Foreign Direct Investment In China," The Japanese Economic Review, Japanese Economic Association, vol. 56(4), pages 408-416. [Downloadable!] (restricted)
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  7. Luis J. Álvarez & Ignacio Hernando, 2006. "Competition and price adjustment in the euro area," Banco de España Working Papers 0629, Banco de España. [Downloadable!]
  8. Matteo Ciccarelli & Carlo Altavilla, 2007. "Inflation forecasts, monetary policy and unemployment dynamics: evidence from the US and the euro area," Working Paper Series 725, European Central Bank. [Downloadable!]
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  9. Josep M. Vilarrubia, 2006. "Neighborhood effects in economic growth," Banco de España Working Papers 0627, Banco de España. [Downloadable!]
  10. Arturo Galindo & Alejandro Izquierdo & José M. Montero, 2006. "Real exchange rates, dollarization and industrial employment in Latin America," Banco de España Working Papers 0601, Banco de España. [Downloadable!]
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  11. Ricardo Gimeno & Juan M. Nave, 2006. "Genetic algorithm estimation of interest rate term structure," Banco de España Working Papers 0634, Banco de España. [Downloadable!]
  12. Reint Gropp & Christoffer Kok Sørensen & Jung-Duk Lichtenberger, 2007. "The dynamics of bank spreads and financial structure," Working Paper Series 714, European Central Bank. [Downloadable!]
  13. Enrique Alberola & Rodrigo César Salvado, 2006. "Banks, remittances and financial deepening in receiving countries. A model," Banco de España Working Papers 0621, Banco de España. [Downloadable!]
  14. Ruben Segura-Cayuela, 2006. "Inefficient Policies, Inefficient Institutions and Trade," 2006 Meeting Papers 502, Society for Economic Dynamics. [Downloadable!]
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  15. Barry E. Jones & Livio Stracca, 2006. "Are money and consumption additively separable in the euro area? A non-parametric approach," Working Paper Series 704, European Central Bank. [Downloadable!]
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