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How are firms' wages and prices linked: survey evidence in Europe

  • Martine Druant

    ()

    (National Bank of Belgium)

  • Silvia Fabiani

    ()

    (Bank of Italy)

  • Gabor Kezdig

    ()

    (Central European University)

  • Ana Lamo

    ()

    (European Central Bank)

  • Fernando Martins

    ()

    (Bank of Portugal)

  • Roberto Sabbatini

    ()

    (Bank of Italy, Economic Research Department)

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market�s institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter also exhibits a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2009/2009-0725/en_tema_725.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 725.

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Date of creation: Oct 2009
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Handle: RePEc:bdi:wptemi:td_725_09
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  1. Philip Vermeulen & Daniel A. Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2012. "Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1631-1650, December.
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  15. Fabiani, Silvia & Loupias, Claire & Martins, Fernando & Sabbatini, Roberto (ed.), 2007. "Pricing Decisions in the Euro Area: How Firms Set Prices and Why," OUP Catalogue, Oxford University Press, number 9780195309287, March.
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  20. Giovanni Olivei & Silvana Tenreyro, 2008. "Wage setting patterns and monetary policy: international evidence," LSE Research Online Documents on Economics 19572, London School of Economics and Political Science, LSE Library.
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