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

Author

Listed:
  • Lorenz Goette

    (University of Zurich)

  • Rudolf Minsch

    (University of Applied Sciences, Chur, Switzerland)

  • Jean-Robert Tyran

    (Department of Economics, University of Copenhagen)

Abstract

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.

Suggested Citation

  • Lorenz Goette & Rudolf Minsch & Jean-Robert Tyran, 2005. "Micro Evidence on the Adjustment of Sticky-Price Goods: It's How Often, not How Much," Discussion Papers 05-20, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0520
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    Cited by:

    1. Denis Fougere & Erwan Gautier & Herve Le Bihan, 2010. "Restaurant Prices and the Minimum Wage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1199-1234, October.
    2. Yao, Fang, 2009. "Non-constant hazard function and inflation dynamics," SFB 649 Discussion Papers 2009-030, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    3. repec:hum:wpaper:sfb649dp2009-057 is not listed on IDEAS
    4. James Yetman, 2009. "Hong Kong Consumer Prices are Flexible," Working Papers 052009, Hong Kong Institute for Monetary Research.
    5. Sheedy, Kevin D., 2010. "Intrinsic inflation persistence," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1049-1061, November.
    6. Simone Elmer & Thomas Maag, 2009. "The Persistence of Inflation in Switzerland," KOF Working papers 09-235, KOF Swiss Economic Institute, ETH Zurich.
    7. Paul Middleditch, 2010. "A New Keynesian Model with Heterogeneous Price Setting," Centre for Growth and Business Cycle Research Discussion Paper Series 150, Economics, The University of Manchester.
    8. Julio J. Rotemberg, 2008. "Behavioral Aspects of Price Setting, and Their Policy Implications," NBER Working Papers 13754, National Bureau of Economic Research, Inc.
    9. Mustafa Utku Özmen, 2020. "In Pursuit Of Understanding Markups In Restaurant Services Prices," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(06), pages 1423-1437, December.
    10. Julio J. Rotemberg, 2010. "Altruistic Dynamic Pricing with Customer Regret," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 646-672, December.
    11. Daniel Kaufmann, 2009. "Price-Setting Behaviour in Switzerland: Evidence from CPI Micro Data," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(III), pages 293-349, September.
    12. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1415-1464.
    13. repec:hum:wpaper:sfb649dp2009-030 is not listed on IDEAS
    14. repec:hum:wpaper:sfb649dp2009-042 is not listed on IDEAS
    15. Fredrik Wulfsberg, 2016. "Inflation and Price Adjustments: Micro Evidence from Norwegian Consumer Prices 1975-2004," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 175-194, July.
    16. Di Bartolomeo, Giovanni & Di Pietro, Marco, 2018. "Optimal Inflation Targeting Rule Under Positive Hazard Functions For Price Changes," Macroeconomic Dynamics, Cambridge University Press, vol. 22(1), pages 135-152, January.
    17. Erwan Gautier, 2008. "Les ajustements micro conomiques des prix : une synth se des mod les Théoriques et résultats empiriques," Working papers 211, Banque de France.
    18. Di Bartolomeo, Giovanni & Di Pietro, Marco & Beqiraj, Elton, 2020. "Price and wage inflation persistence across countries and monetary regimes," Journal of International Money and Finance, Elsevier, vol. 109(C).

    More about this item

    Keywords

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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other

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