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Cost, Demand and Producer Price Changes

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  • Claire Loupias

    ()
    (EPEE, TEPP (FR-CNRS 3126) Université d'Evry Val d'Essonne and CEPII)

  • Patrick Sevestre

    ()
    (Banque de France, SAMIC-DEMS-DGEI and Paris School of Economics, Université de Paris I - Panthéon Sorbonne)

Abstract

We estimate an ordered probit model in order to explain the occurrence and magnitude of producer price changes in the French manufacturing sector. We use data consisting essentially of the Banque de France monthly business surveys, pooled over the years 1998-2005. Our results show that changes in the price of intermediate inputs are the main driver of producer price changes. Firms also appear to react significantly to changes in the producer price index of their industry. Variations in labor costs as well as in the production level also appear to increase the likelihood of a price change but their influence seems to be of a lesser importance. We also show that estimating an unconstrained dynamic model allows improving the estimation results as compared to those associated with a standard state-dependent model. Finally, our results point to an asymmetry in price adjustments. When they face a change in their costs, firms adjust their prices upward more often and more rapidly than they do it downward.

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Bibliographic Info

Paper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 10-06.

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Length: 55 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:eve:wpaper:10-06

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Keywords: Price stickiness; frequency of price changes; price setting-behavior; survey data; ordered probit model;

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Cited by:
  1. Druant, Martine & Fabiani, Silvia & Kezdi, Gabor & Lamo, Ana & Martins, Fernando & Sabbatini, Roberto, 2012. "Firms' price and wage adjustment in Europe: Survey evidence on nominal stickiness," Labour Economics, Elsevier, vol. 19(5), pages 772-782.
  2. Dhyne, E. & Fuss, C. & Pesaran, H. & Sevestre, P., 2007. "Lumpy Price Adjustments: A Microeconometric Analysis," Working papers 185, Banque de France.
  3. Fabio Rumler & Alfred Stiglbauer & Josef Baumgartner, 2011. "Patterns and Determinants of Price Changes: Analysing Individual Consumer Prices in Austria," German Economic Review, Verein für Socialpolitik, vol. 12(3), pages 336-350, 08.
  4. Ruediger Bachmann & Benjamin Born & Steffen Elstner & Christian Grimme, 2013. "Time-Varying Business Volatility, Price Setting, and the Real Effects of Monetary Policy," NBER Working Papers 19180, National Bureau of Economic Research, Inc.
  5. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 380, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Martine Druant & Silvia Fabiani & Gábor Kézdi & Ana Lamo & Fernando Martins & Roberto Sabbatini, 2012. "How are firms’ wages and prices linked: survey evidence in Europe," MNB Occasional Papers 2012/102, Magyar Nemzeti Bank (the central bank of Hungary).
  7. Schenkelberg, Heike, 2011. "Why are Prices Sticky? Evidence from Business Survey Data," Discussion Papers in Economics 12158, University of Munich, Department of Economics.
  8. Paula, Georg, 2011. "Three Empirical Essays in Economics Using Firm Level Panel Data," Munich Dissertations in Economics 13839, University of Munich, Department of Economics.
  9. Kai Carstensen & Steffen Elstner & Georg Paula, 2011. "How Strongly Did the 2007/08 Oil Price Hike Contribute to the Subsequent Recession?," CESifo Working Paper Series 3357, CESifo Group Munich.
  10. Montornès, J. & Sauner-Leroy, J-B., 2010. "Wage-setting Behavior in France: Additional Evidence from an Ad-hoc Survey," Working papers 282, Banque de France.

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