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Time-dependent versus State-dependent Pricing: A Panel Data Approach to the Determinants of Belgian Consumer Price Changes

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Author Info
Luc Aucremanne () (National Bank of Belgium, Research Department)
Emmanuel Dhyne () (National Bank of Belgium, Research Department)
Abstract

Using 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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Paper provided by National Bank of Belgium in its series Research series with number 200504-1.

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Length: 63 pages
Date of creation: Apr 2005
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Handle: RePEc:nbb:reswpp:200504-1

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Related research
Keywords: consumer prices; time-dependent pricing; state-dependent pricing; Calvo model; Truncated Calvo model; Taylor contracts;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
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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    Other versions:
  2. Jeffrey R. Campbell & Benjamin Eden, 2005. "Rigid prices: evidence from U.S. scanner data," Working Paper Series WP-05-08, Federal Reserve Bank of Chicago. [Downloadable!]
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  16. Alexander L. Wolman, 1999. "Sticky prices, marginal cost, and the behavior of inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 29-48. [Downloadable!]
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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. Patrick Lunnemann & Ladislav Wintr, 2006. "Are internet prices sticky?," Working Paper Series 645, European Central Bank. [Downloadable!]
  2. Patrick Lünnemann & Ladislav Wintr, 2006. "Are internet prices sticky?," BCL working papers 22, Central Bank of Luxembourg. [Downloadable!]
  3. 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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  4. Patrick Lünnemann & Thomas Y. Mathä, 2005. "Consumer price behaviour in Luxembourg - evidence from micro CPI data," Working Paper Series 541, European Central Bank. [Downloadable!]
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  5. Ignazio Angelloni & Luc Aucremanne & Michael Ehrmann & Jordi Galí & Andrew Levin & Frank Smets, 2005. "New Evidence on Inflation Persistence and Price Stickiness in the Euro Area: Implications for Macro Modelling," Economics Working Papers 910, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  6. Babutsidze, Zakaria, 2006. "(S,s) Pricing: Does the Heterogeneity Wipe Out the Asymmetry on Micro Level?," UNU-MERIT Working Paper Series 033, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
  7. Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers 896, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. L. J. Álvarez & E. Dhyne & M. Hoeberichts & C. Kwapil & H. Le Bihan, 2005. "Sticky Prices in the Euro Area: a Summary of New Micro Evidence," DNB Working Papers 062, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
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