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Price rigidity in the euro area - An assessment

Author

Listed:
  • Emmanuel Dhyne
  • Jerzy Konieczny
  • Fabio Rumler
  • Patrick Sevestre

Abstract

The study on price stickiness examined nominal rigidities in the euro area and their importance for the functioning of markets. The study examined nominal rigidities in the euro area and their importance for the functioning of markets. It analysed the price setting behaviour of firms at the micro-level, developed several indicators to measure the degree of producer and consumer price rigidity at sector and product level and examined the various factors affecting consumer and producer price rigidity. One of the main findings of the study is that economic adjustment to nominal shocks depends both on the frequency of price changes and on the degree of price rigidity (prices are defined as being rigid in the study if they less then fully adjust to a change in demand or costs). The study also distinguished between intrinsic price rigidity (prices only adjust partially to changes in demand and costs that have significant effects on the optimal price) and extrinsic price rigidity (prices do not adjust because demand and costs are stable and the optimal price does not vary a lot). Making this distinction leads to important conclusions concerning the degree of price rigidity for certain product categories and has important policy implications.

Suggested Citation

  • Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 2008 - 2015 380, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0380
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    14. Hillen, Judith & Fedoseeva, Svetlana, 2021. "E-commerce and the end of price rigidity?," Journal of Business Research, Elsevier, vol. 125(C), pages 63-73.

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    More about this item

    Keywords

    Price rigidity in the euro area. An assessment; price rigidity; price stickiness; euro area; adjustment capacity; nominal shocks; euro introduction; price changes; inflation; regulated prices; consumer prices; producer prices; Dhyne; Konieczny; Rumler; Sevestre.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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