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Price-setting behaviour in New Zealand

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  • Miles Parker

Abstract

New evidence from a large survey of over 5300 New Zealand firms provides insight into the causes and extent of price rigidity. There is a large degree of heterogeneity between, and within, sectors. The median number of price reviews is twice per year, but the median number of changes is just one. Multi-product firms reset prices more frequently, even accounting for other firm characteristics. Explicit and implicit contracts and strategic complementarity are the most widely recognised causes of price rigidity. Menu costs and sticky information are not widely recognised.

Suggested Citation

  • Miles Parker, 2017. "Price-setting behaviour in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 51(3), pages 217-236, September.
  • Handle: RePEc:taf:nzecpp:v:51:y:2017:i:3:p:217-236
    DOI: 10.1080/00779954.2016.1189957
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    2. Fernando E. Alvarez & Francesco Lippi & Luigi Paciello, 2011. "Optimal Price Setting With Observation and Menu Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1909-1960.
    3. Froyen, Richard T. & Guender, Alfred V., 2014. "Price level targeting and the delegation issue in an open economy," Economics Letters, Elsevier, vol. 122(1), pages 12-15.
    4. Parker, Miles, 2016. "How exporters set prices: evidence from a large behavioural survey," Working Paper Series 1974, European Central Bank.
    5. Funke, Michael & Kirkby, Robert & Mihaylovski, Petar, 2018. "House prices and macroprudential policy in an estimated DSGE model of New Zealand," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 152-171.
    6. Richard T. Froyen & Alfred V Guender, 2016. "The Real Exchange Rate in Open-Economy Taylor Rules: A Re-Assessment," Working Papers in Economics 16/10, University of Canterbury, Department of Economics and Finance.
    7. Daniel Levy & Andrew T. Young, 2021. "Promise, trust, and betrayal: Costs of breaching an implicit contract," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 1031-1051, January.
    8. Philip Bunn & Colin Ellis, 2012. "How do Individual UK Producer Prices Behave?," Economic Journal, Royal Economic Society, vol. 122(558), pages 16-34, February.
    9. Michelle Lewis & Dr John McDermott & Adam Richardson, 2016. "Inflation expectations and the conduct of monetary policy in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 79, pages 1-12, March.
    10. Richard T. Froyen & Alfred V. Guender, 2017. "What to Aim for? The Choice of an Inflation Objective when Openness Matters," Open Economies Review, Springer, vol. 28(1), pages 167-190, February.
    11. Jed Armstrong & Miles Parker, 2016. "How wages are set: evidence from a large survey of firms," Reserve Bank of New Zealand Discussion Paper Series DP2016/03, Reserve Bank of New Zealand.
    12. Anna Watson, 2010. "The Impact of Trade Integration and Competition on Real and Nominal Price Rigidities: Insights from a New-Keynesian DSGE Model," DEGIT Conference Papers c015_061, DEGIT, Dynamics, Economic Growth, and International Trade.
    13. francesco lippi & Luigi Paciello & Fernando Alvarez, 2012. "Monetary Shocks with Observation and Menu Costs," 2012 Meeting Papers 439, Society for Economic Dynamics.
    14. Daphne Nicolitsas, 2016. "Price Setting Practices In Greece: Evidence From A Small-Scale Firm-Level Survey," Bulletin of Economic Research, Wiley Blackwell, vol. 68(4), pages 367-382, October.
    15. Yang, Choongryul, 2022. "Rational inattention, menu costs, and multi-product firms: Micro evidence and aggregate implications," Journal of Monetary Economics, Elsevier, vol. 128(C), pages 105-123.
    16. N. A. Karlova & I. V. Bogacheva & E. V. Puzanova., 2018. "Drivers of price inertia: Survey evidence," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 8.
    17. Richard T. Froyen & Alfred V. Guender, 2021. "A re-evaluation of the choice of an inflation target in the wake of the global financial crisis," New Zealand Economic Papers, Taylor & Francis Journals, vol. 55(3), pages 277-288, September.
    18. Russell Pittman, 2009. "Who Are You Calling Irrational? Marginal Costs, Variable Costs, and the Pricing Practices of Firms," EAG Discussions Papers 200903, Department of Justice, Antitrust Division.
    19. Thorvardur Tjörvi Ólafsson & Ásgerdur Pétursdóttir & Karen Á. Vignisdóttir, 2011. "Price setting in turbulent times," Economics wp54, Department of Economics, Central bank of Iceland.
    20. Ellis, Colin, 2009. "Do supermarket prices change from week to week?," Bank of England working papers 378, Bank of England.
    21. Hashmat Khan & John Tsoukalas, 2011. "Effects of Productivity Shocks on Employment: UK Evidence (revised 25 February 2013)," Carleton Economic Papers 11-05, Carleton University, Department of Economics, revised 25 Feb 2013.
    22. Fernando Alvarez & Francesco Lippi & Luigi Paciello, 2015. "Phillips curves with observation and menu costs," EIEF Working Papers Series 1508, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2015.
    23. Macallan, Clare & Taylor, Tim & O'Grady, Tom, 2011. "Assessing the risk to inflation from inflation expectations," Bank of England Quarterly Bulletin, Bank of England, vol. 51(2), pages 100-110.
    24. Khan Hashmat & Tsoukalas John, 2013. "Effects of productivity shocks on hours worked: UK evidence," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-31, September.
    25. Froyen, Richard T. & Guender, Alfred V., 2018. "The real exchange rate in Taylor rules: A Re-Assessment," Economic Modelling, Elsevier, vol. 73(C), pages 140-151.

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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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