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When Do Firms Adjust Prices? Evidence from Micro Panel Data

This paper analyzes the price setting behavior of firms using data from a large panel of quarterly firm surveys from 1984 to 2006. These data allow to track changes in firms’ prices, their price expectations and several other firm-specific developments such as changes in costs for input products and capacity utilization rates. The analysis shows that state dependent pricing is clearly important and that variables measuring the current situation of the firm add a lot to the explanatory power of a price adjustment probability model, compared to purely time dependent features. Although the rate of inflation is a significant explanatory variable, the inclusion of macroeconomic variables adds only marginally to the explanatory power of the model with the firm specific variables. Furthermore, when taking into account sticky plan models by excluding possibly predetermined price changes, the importance of state dependent factors becomes even larger. The data also display features that suggest that sticky information plays a role for price setting.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 07-160.

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Length: 38 pages
Date of creation: Apr 2007
Handle: RePEc:kof:wpskof:07-160
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