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The price setting behaviour of Spanish firms: evidence from survey data

  • Luis J. Álvarez

    ()

    (Banco de España)

  • Ignacio Hernando

    ()

    (Banco de España)

This paper reports the results of a survey carried out by the Banco de España on a sample of around 2000 Spanish firms to deepen the understanding of firms' price setting behaviour. The main findings may be summarised as follows. Most Spanish firms are price setters that use predominantly state dependent rules or a combination of time and state dependent rules when reviewing their prices. Changes in costs are the main factor underlying price increases, whereas changes in market conditions (demand and competitors' prices) are the main driving forces of price decreases. The degree of price flexibility is directly related to the share of energy inputs over total costs and to the intensity of competition, whereas it is inversely linked to the labour share. The three theories of price stickiness that receive the highest empirical support are implicit contracts, coordination failure and explicit contracts.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0537e.pdf
File Function: First version, October 2005
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0537.

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Length: 69 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:bde:wpaper:0537
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  15. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  16. Kwapil, Claudia & Baumgartner, Josef & Scharler, Johann, 2005. "The price-setting behavior of Austrian firms: some survey evidence," Working Paper Series 0464, European Central Bank.
  17. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  18. Alan S. Blinder, 1991. "Why are Prices Sticky? Preliminary Results from an Interview Study," NBER Working Papers 3646, National Bureau of Economic Research, Inc.
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  25. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
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