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Time-dependent or state-dependent price setting? Micro-evidence from German metal-working industries

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  • Stahl, Harald

Abstract

Price setting in German metal-working industries is analysed using a monthly panel of individual price data for more than 2,000 plants covering the period from 1980 to 2001. Motivated by several models in the literature, a duration model is estimated. Price changes can be explained by a combination of state-dependence and time-dependence but time-dependence clearly dominates. Time-dependence is strongest if a price increase follows a price increase. This is typically the case during the observed period. A price increase is most likely to follow a price increase after 1, 4, 5, 8, 9, – quarters. This time-dependent effect is so strong and cost and price increases are so weak in the observed period that adjustment occurs before the sticky price sufficiently deviates from the flexible price, as traditional menu cost models assume. State-dependence seems to be most relevant in periods with decreasing demand. Then prices are reduced and the time between two price reductions only rarely exceeds four months. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2005,25.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp1:4219

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Keywords: price rigidity; duration analysis; business survey data;

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Cited by:
  1. Dhyne, E. & Fuss, C. & Pesaran, H. & Sevestre, P., 2007. "Lumpy Price Adjustments, A Microeconometric Analysis," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0719, Faculty of Economics, University of Cambridge.
  2. Carlsson, Mikael & Westermark, Andreas, 2011. "The New Keynesian Phillips Curve and staggered price and wage determination in a model with firm-specific labor," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(4), pages 579-603, April.
  3. Loupias, Claire & Sevestre, Patrick, 2010. "Costs, demand, and producer price changes," Working Paper Series, European Central Bank 1184, European Central Bank.
  4. Merkl, Christian & Snower, Dennis, 2009. "Monetary Persistence, Imperfect Competition, And Staggering Complementarities," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 13(01), pages 81-106, February.
  5. Dias, D. & Dossche, M. & Gautier, E. & Hernando, I. & Sabbatini , R. & Stahl , H. & Vermeulen, P., 2007. "Macro Price setting in the euro area: Some stylised facts from Individual Producer Price," Working papers, Banque de France 164, Banque de France.
  6. Vítor Gaspar & Andrew Levin & Fernando Martins & Frank Smets, 2009. "Evidence from surveys of price-setting managers: Policy lessons and directions for ongoing research," Working Papers, Banco de Portugal, Economics and Research Department w200927, Banco de Portugal, Economics and Research Department.
  7. Stahl, Harald, 2006. "Price adjustment in German manufacturing: evidence from two merged survey," Discussion Paper Series 1: Economic Studies 2006,46, Deutsche Bundesbank, Research Centre.

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