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Lumpy price adjustments : a microeconometric analysis

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  • Emmanuel Dhyne

    ()
    (NBB, Research Department
    Université de Mons-Hainaut)

  • Catherine Fuss

    ()
    (NBB, Research Department
    Université Libre de Bruxelles)

  • Hashem Pesaran

    (Cambridge University
    University of Southern California)

  • Patrick Sevestre

    (Université de Paris I - Panthéon Sorbonne
    Banque de France)

Abstract

This paper presents a simple model of state-dependent pricing that allows identifying the relative importance of both nominal and real factors in price rigidity. Using two rich datasets consisting of a large fraction of the price quotes used to compute the Belgian and French Consumer Price Indices, we are able to evaluate, the importance of the menu costs and to discriminate between idiosyncratic and common shocks that affect the marginal cost and/or the desired mark-up at the outlet level. We find that infrequent price changes are not necessarily associated with large menu costs. Indeed, real rigidities appear to play a significant role. We also find that asymmetry in the price adjustment may result from a trend in marginal costs and/or desired mark-ups rather than from asymmetric menu costs

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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 100.

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Length: 75 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:nbb:reswpp:200610-12

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Keywords: Sticky prices; menu costs; nominal and real rigidities; micro panels;

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Cited by:
  1. Bo E. Honoré & Daniel Kaufmann & Sarah Lein, 2012. "Asymmetries in Price‐Setting Behavior: New Microeconometric Evidence from Switzerland," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 211-236, December.
  2. Heckel, T. & Le Bihan, H. & Montornès, J., 2008. "Sticky Wages. Evidence from Quarterly Microeconomic Data," Working papers 208, Banque de France.
  3. Fougère, Denis & Gautier, Erwan & Le Bihan, Hervé, 2008. "Restaurant Prices and the Minimum Wage," CEPR Discussion Papers 6892, C.E.P.R. Discussion Papers.
  4. Gautier, E. & Le Saout, R., 2012. "The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data," Working papers 375, Banque de France.
  5. Sarah M. Rupprecht, 2007. "When Do Firms Adjust Prices? Evidence from Micro Panel Data," KOF Working papers 07-160, KOF Swiss Economic Institute, ETH Zurich.
  6. Loupias, C. & Sevestre, P., 2010. "Costs, demand, and producer price changes," Working papers 273, Banque de France.
  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. 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.

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