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Time-Dependency in Producers’ Price Adjustments: Evidence from Micro Panel Data

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  • Nilsen Øivind A.

    () (Department of Economics, Norwegian School of Economics, N-5045, Bergen, Norway)

  • Pettersen Per Marius

    ()

  • Bratlie Joakim

    () (Department of Economics, Norwegian School of Economics, N-5045, Bergen, Norway)

Abstract

Existing micro evidence of firms’ price changes tends to show a downward sloping hazard rate – the longer the price of a product has remained the same, the less likely it is that the price will change. Using a panel of Norwegian plant- and product-specific prices, we also find a downward sloping hazard when applying a Kaplan–Meier model. After having controlled for both observed and unobserved characteristics, we find flat hazards with spikes in the first and twelfth months. This suggests time-dependent price-setting by at least some of the producers. The spike after 12 months might be explained by seasonal demand effects, but also by the pricing season effect related to information acquisition and processing, negotiation and signing of price contracts. The revealed price adjustment pattern is at odds with the predictions of the Calvo model, a central element in many dynamic stochastic general equilibrium models, as this assumes constant frequencies of price adjustments over time. Our empirical findings instead point to a modified Calvo model where firms in some periods experience lower menu costs. Finally, the empirical findings may have implications for the effectiveness of monetary policy interventions.

Suggested Citation

  • Nilsen Øivind A. & Pettersen Per Marius & Bratlie Joakim, 2018. "Time-Dependency in Producers’ Price Adjustments: Evidence from Micro Panel Data," Review of Economics, De Gruyter, vol. 69(2), pages 147-168, August.
  • Handle: RePEc:lus:reveco:v:69:y:2018:i:2:p:147-168:n:2
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    Cited by:

    1. Øivind A. Nilsen & Magne Vange, 2019. "Intermittent Price Changes in Production Plants: Empirical Evidence Using Monthly Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(1), pages 98-122, February.
    2. Øivind Anti Nilsen & Magne Vange, 2018. "Intermittent Price Changes in Production Plants: Empirical Evidence Using Monthly Data," CESifo Working Paper Series 7145, CESifo Group Munich.

    More about this item

    Keywords

    price-setting; micro data;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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