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Time-dependent or state-dependent price setting? Micro-evidence from German metal-working industries

Author

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  • Stahl, Harald

Abstract

Price setting in German metal-working industries is analysed using a monthly panel of individual price data for more than 2,000 plants covering the period from 1980 to 2001. Motivated by several models in the literature, a duration model is estimated. Price changes can be explained by a combination of state-dependence and time-dependence. Time-dependence clearly dominates and is strongest if a price increase follows a price increase. This occurs most likely after 1, 4, 5, 8, 9, ... quarters. This time-dependent effect is so strong and cost and price increases are so weak in the observed period that adjustment occurs before the sticky price sufficiently deviates from the flexible price, as traditional menu cost models assume. State-dependence seems to be most relevant in periods with decreasing demand. Then firms reduce prices and the time between two price cuts only rarely exceeds four months. JEL Classification: D43, E31, L11

Suggested Citation

  • Stahl, Harald, 2005. "Time-dependent or state-dependent price setting? Micro-evidence from German metal-working industries," Working Paper Series 534, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005534
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp534.pdf
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    Cited by:

    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.
    2. Dixon, Huw D. & Grimme, Christian, 2022. "State-dependent or time-dependent pricing? New evidence from a monthly firm-level survey: 1980–2017," European Economic Review, Elsevier, vol. 150(C).
    3. Carlsson, Mikael & Westermark, Andreas, 2011. "The New Keynesian Phillips Curve and staggered price and wage determination in a model with firm-specific labor," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 579-603, April.
    4. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
    5. Claire Loupias & Patrick Sevestre, 2013. "Costs, Demand, and Producer Price Changes," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 315-327, March.
    6. Groen, Jan J J & Mumtaz, Haroon, 2008. "Investigating the structural stability of the Phillips curve relationship," Bank of England working papers 350, Bank of England.
    7. Merkl, Christian & Snower, Dennis, 2009. "Monetary Persistence, Imperfect Competition, And Staggering Complementarities," Macroeconomic Dynamics, Cambridge University Press, vol. 13(1), pages 81-106, February.
    8. Alvarez Luis J. & Burriel Pablo, 2010. "Is a Calvo Price Setting Model Consistent with Individual Price Data?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-25, May.
    9. Gaspar, Vitor & Levin, Andrew & Smets, Frank & Martins, Fernando Manuel, 2007. "Evidence from Surveys of Price-Setting Managers: Policy Lessons and Directions for Ongoing Research," CEPR Discussion Papers 6227, C.E.P.R. Discussion Papers.
    10. Dhyne, Emmanuel & Fuss, Catherine & Pesaran, M. Hashem & Sevestre, Patrick, 2011. "Lumpy Price Adjustments: A Microeconometric Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 529-540.
    11. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area : a summary of the Inflation Persistence Network evidence," Working Paper Research 95, National Bank of Belgium.
    12. Harald Stahl, 2010. "Price adjustment in German manufacturing: evidence from two merged surveys," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 67-92.
    13. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence," Occasional Paper Series 46, European Central Bank.
    14. Shiraishi, Kosuke, 2022. "Determinants of VAT pass-through under imperfect competition: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 61(C).
    15. Merkl, Christian & Snower, Dennis J., 2005. "Monetary persistence, imperfect competition, and staggering complementarities," Kiel Working Papers 1257, Kiel Institute for the World Economy (IfW Kiel).
    16. Timo Henckel & Gordon Menzies & Peter Moffat & Daniel J. Zizzo, 2017. "Sticky Belief Adjustment: A Double Hurdle Model and Experimental Evidence," Working Paper Series 40, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    17. E. Dhyne, 2005. "Inflation persistence and price-setting in the euro area : results of the Eurosystem Inflation Persistence Network," Economic Review, National Bank of Belgium, issue iv, pages 17-37, December.

    More about this item

    Keywords

    business survey data; duration analysis; price rigidity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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