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

  • Martins, Fernando

This paper analyses the results of a survey conducted by the Banco de Portugal with the main purpose of investigating firms’ price setting behaviour. The evidence points to the presence of a considerable degree of price stickiness, which seems to be higher in services than in manufacturing. The presence of implicit contracts between firms and their customers under which the former pledge to stabilise their prices as a way to increase customers’ loyalty is apparently the main reason that prevents firms from changing their prices more promptly. Other relevant sources of price stickiness were also found: coordination problems arising from the preference of firms not to change their prices unless their competitors do so, the constraint imposed by a high share of fixed costs, marginal costs that vary little when costs are an important determinant in pricing decisions or the presence of formal contracts that are costly to renegotiate. JEL Classification: E31, D40, L11

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Paper provided by European Central Bank in its series Working Paper Series with number 0562.

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Date of creation: Dec 2005
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Handle: RePEc:ecb:ecbwps:20050562
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  1. Josef Baumgartner & Claudia Kwapil & Johann Scharler, 2005. "The Price-Setting Behavior of Austrian Firms: Some Survey Evidence," Working Papers 100, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Discussion Paper Series 1: Economic Studies 2005,43, Deutsche Bundesbank, Research Centre.
  3. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  4. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001. "European Inflation Dynamics," NBER Working Papers 8218, National Bureau of Economic Research, Inc.
  5. Luis J. �lvarez & Pablo Burriel & Ignacio Hernando, 2010. "Price-setting behaviour in Spain: evidence from micro PPI data," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 105-121.
  6. Álvarez, Luis J. & Hernando, Ignacio, 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Working Paper Series 0538, European Central Bank.
  7. Aucremanne, Luc & Druant, Martine, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey?," Working Paper Series 0448, European Central Bank.
  8. repec:nbr:nberre:0126 is not listed on IDEAS
  9. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
  10. Loupias, C. & Ricart, R., 2004. "Price Setting in France: new Evidence from Survey Data," Working papers 120, Banque de France.
  11. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 183-203, April.
  12. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  13. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  14. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-50, August.
  15. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 313-38, April.
  16. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
  17. Emmanuel Dhyne & Luis J. Álvarez & Hervé Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lünnemann & Fabio Rumler & Jouko Vilmunen, 2005. "Price setting in the euro area: Some stylized facts from Individual Consumer Price Data," Working Papers w200506, Banco de Portugal, Economics and Research Department.
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