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Lumpy Price Adjustments: A Microeconometric Analysis

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Author Info

  • Dhyne, Emmanuel

    ()
    (National Bank of Belgium)

  • Fuss, Catherine

    ()
    (National Bank of Belgium)

  • Pesaran, M. Hashem

    ()
    (University of Cambridge)

  • Sevestre, Patrick

    ()
    (University of Paris 1 Panthéon-Sorbonne)

Abstract

This paper presents a simple model of state-dependent pricing that allows identification of the relative importance of the degree of price rigidity that is inherent to the price setting mechanism (intrinsic) and that which is due to the price’s driving variables (extrinsic). Using two data sets consisting of a large fraction of the price quotes used to compute the Belgian and French CPI, we are able to assess the role of intrinsic and extrinsic price stickiness in explaining the occurrence and magnitude of price changes at the outlet level. We find that infrequent price changes are not necessarily associated with large adjustment costs. Indeed, extrinsic rigidity appears to be significant in many cases. We also find that asymmetry in the price adjustment could be due to trends in marginal costs and/or desired mark-ups rather than asymmetric cost of adjustment bands.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2793.

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Length: 60 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2793

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Keywords: micro non-linear panels; nominal intrinsic and extrinsic rigidities; sticky prices;

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Citations

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Cited by:
  1. Denis Fougere & Erwan Gautier & Herve Le Bihan, 2010. "Restaurant Prices and the Minimum Wage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1199-1234, October.
  2. Claire Loupias & Patrick Sevestre, 2013. "Costs, Demand, and Producer Price Changes," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 315-327, March.
  3. Heckel, T. & Le Bihan, H. & Montornès, J., 2008. "Sticky Wages. Evidence from Quarterly Microeconomic Data," Working papers 208, Banque de France.
  4. Bo E. Honoré & Daniel Kaufmann & Sarah Marit Lein, 2012. "Asymmetries in Price-Setting Behavior: New Microeconometric Evidence from Switzerland," Working Papers 2012-09, Swiss National Bank.
  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. Lein, Sarah M., 2010. "When do firms adjust prices? Evidence from micro panel data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 696-715, September.
  7. Gautier, E., 2008. "Les ajustements microéconomiques des prix : une synthèse des modèles théoriques et résultats empiriques," Working papers 211, Banque de France.
  8. Marcelo Sánchez, 2011. "Oil shocks and endogenous markups: results from an estimated euro area DSGE model," International Economics and Economic Policy, Springer, vol. 8(3), pages 247-273, September.
  9. Thomas A. Eife, 2008. "Do Menu Costs Make Prices Sticky?," Working Papers 0477, University of Heidelberg, Department of Economics, revised Oct 2008.
  10. Gautier, E. & Le Saout, R., 2012. "The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data," Working papers 375, Banque de France.

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