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Micro Evidence on the Adjustment of Sticky-Price Goods: It's How Often, not How Much

  • Lorenz Goette

    (University of Zurich)

  • Rudolf Minsch

    (University of Applied Sciences, Chur, Switzerland)

  • Jean-Robert Tyran

    (Department of Economics, University of Copenhagen)

We use a unique panel data set to analyze price setting in restaurants in Switzerland 1977-93, for items known to have sticky prices. The macroeconomic environment during this time period allows us to examine how firms adjust prices at low (0%) and fairly high (7%) inflation. Our results indicate that firms strongly react to inflation in the timing of their price adjustment: hazard of price changes is increasing with time and becomes steeper at higher inflation rates. However, we find little evidence that the amount by which they change the price responds to the inflation rate.

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File URL: http://www.econ.ku.dk/english/research/publications/wp/2005/0520.pdf/
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 05-20.

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Length: 17 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:kud:kuiedp:0520
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  1. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  2. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  3. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  4. Laurence Ball & N. Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Harvard Institute of Economic Research Working Papers 1997, Harvard - Institute of Economic Research.
  5. Eden, Benjamin, 1993. "Inflation and Price Adjustment: An Analysis of Micro Data," Working Papers 94-13, University of Iowa, Department of Economics, revised 1994.
  6. Anil K Kashyap, 1994. "Sticky Prices: New Evidence from Retail Catalogs," NBER Working Papers 4855, National Bureau of Economic Research, Inc.
  7. Saul Lach & Daniel Tsiddon, 1994. "Staggering and Synchronization in Price-Setting: Evidence from Multipro-duct Firms," NBER Working Papers 4759, National Bureau of Economic Research, Inc.
  8. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1997. "State-dependent pricing and the dynamics of business cycles," Working Paper 97-02, Federal Reserve Bank of Richmond.
  9. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  10. Julio J. Rotemberg, 2002. "Customer Anger at Price Increases, Time Variation in the Frequency of Price Changes and Monetary Policy," NBER Working Papers 9320, National Bureau of Economic Research, Inc.
  11. Julio J. Rotemberg, 2011. "Fair Pricing," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 952-981, October.
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