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How are prices adjusted in response to shocks? Survey evidence from Austrian firms

  • Claudia Kwapil

    (Economic Analysis Division, Oesterreichische Nationalbank, Austria)

  • Johann Scharler

    (Department of Economics, University of Linz, Austria)

  • Josef Baumgartner

    (Austrian Institute of Economic Research (WIFO), Austria)

In this paper we investigate the response of prices to shocks based on a survey of Austrian firms. We find that firms are more likely to change prices after a cost shock than after a demand shock. In this vein, our analysis suggests that regular customers are an important explanation for price rigidity after demand shocks. Furthermore, lacking competition is another significant explanation for price stickiness. Finally, we find asymmetric responses after cost and demand shocks. Prices appear to be more rigid downward than upward after cost shocks, while they are more rigid upward than downward in reaction to shifts in demand. Copyright © 2009 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 31 (2010)
Issue (Month): 2-3 ()
Pages: 151-160

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Handle: RePEc:wly:mgtdec:v:31:y:2010:i:2-3:p:151-160
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  1. Daniel Levy & Haipeng (Allan) Chen & Sourav Ray & Mark Bergen, 2007. "Asymmetric Price Adjustment in the Small," Kiel Working Papers 1356, Kiel Institute for the World Economy.
  2. Rotemberg, Julio J., 2005. "Customer anger at price increases, changes in the frequency of price adjustment and monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 829-852, May.
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  8. repec:fth:harver:1418 is not listed on IDEAS
  9. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2003. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Working Papers 2003-07, Bar-Ilan University, Department of Economics.
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  15. Kwapil, Claudia & Baumgartner, Josef & Scharler, Johann, 2005. "The price-setting behavior of Austrian firms: some survey evidence," Working Paper Series 0464, European Central Bank.
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