Time-dependent versus State-dependent Pricing: A Panel Data Approach to the Determinants of Belgian Consumer Price Changes
AbstractUsing Logistic Normal regressions, we model the price-setting behaviour for a large sample of Belgian consumer prices over the January 1989 - January 2001 period. Our results indicate that time-dependent features are very important, particularly an infinite mixture of Calvo pricing rules and truncation at specific horizons. Truncation is mainly a characteristic of pricing in the service sector where it mostly takes the form of annual Taylor contracts typically renewed at the end of December. Several other variables, including some that can be considered as state variables, are also found to be statistically significant. This is particularly so for accumulated sectoral inflation since the last price change. Once heterogeneity and the role of accumulated inflation are acknowledged, hazard functions become mildly upward-sloping, even in a low inflation regime. The contribution of the state-dependent variables to the pseudo-R² of our equations is, however, not particularly important.
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Bibliographic InfoPaper provided by National Bank of Belgium in its series Working Paper Research with number 66.
Length: 63 pages
Date of creation: Apr 2005
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consumer prices; time-dependent pricing; state-dependent pricing; Calvo model; Truncated Calvo model; Taylor contracts;
Other versions of this item:
- Aucremanne, Luc & Dhyne, Emmanuel, 2005. "Time-dependent versus state-dependent pricing: a panel data approach to the determinants of Belgian consumer price changes," Working Paper Series 0462, European Central Bank.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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