IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Why are Prices Sticky? Evidence from Business Survey Data

  • Schenkelberg, Heike

This paper offers new insights on the price setting behaviour of German retail firms using a novel dataset that consists of a large panel of monthly business surveys from 1991-2006. The firm-level data allows matching changes in firms' prices to several other firm-characteristics. Moreover, information on price expectations allow analyzing the determinants of price updating. Using univariate and bivariate ordered probit specifications, empirical menu cost models are estimated relating the probability of price adjustment and price updating, respectively, to both time- and state- dependent variables. First, results suggest an important role for state-dependence; changes in the macroeconomic and institutional environment as well as firm-specific factors are significantly related to the timing of price adjustment. These findings imply that price setting models should endogenize the timing of price adjustment in order to generate realistic predictions concerning the transmission of monetary policy. Second, an analysis of price expectations yields similar results providing evidence in favour of state-dependent sticky plan models. Third, intermediate input cost changes are among the most important determinants of price adjustment suggesting that pricing models should explicitly incorporate price setting at different production stages. However, the results show that adjustment to input cost changes takes time indicating "additional stickiness" at the last stage of processing.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://epub.ub.uni-muenchen.de/12158/1/price_setting_schenkelberg_022011.pdf
Download Restriction: no

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 12158.

as
in new window

Length:
Date of creation: 22 Feb 2011
Date of revision:
Handle: RePEc:lmu:muenec:12158
Contact details of provider: Postal: Ludwigstr. 28, 80539 Munich, Germany
Phone: +49-(0)89-2180-3405
Fax: +49-(0)89-2180-3510
Web page: http://www.vwl.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mankiw, N Gregory & Reis, Ricardo, 2006. "Pervasive Stickiness (Expanded Version)," CEPR Discussion Papers 5521, C.E.P.R. Discussion Papers.
  2. Oleksiy Kryvtsov & Peter J. Klenow, 2004. "State-Dependent or Time-Dependent Pricing: Does It Matter For Recent U.S. Inflation?," Computing in Economics and Finance 2004 277, Society for Computational Economics.
  3. Mackowiak, Bartosz Adam & Smets, Frank, 2008. "On Implications of Micro Price Data for Macro Models," CEPR Discussion Papers 6961, C.E.P.R. Discussion Papers.
  4. 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.
  5. Hoffmann, Johannes & Kurz-Kim, Jeong-Ryeol, 2006. "Consumer price adjustment under the microscope: Germany in a period of low inflation," Working Paper Series 0652, European Central Bank.
  6. F. Alvarez & F. Lippi & L. Paciello, 2010. "Optimal price setting with observation and menu costs," 2010 Meeting Papers 478, Society for Economic Dynamics.
  7. Fabiani, Silvia & Druant, Martine & Hernando, Ignacio & Kwapil, Claudia & Landau, Bettina & Loupias, Claire & Martins, Fernando & Mathä, Thomas Y. & Sabbatini, Roberto & Stahl, Harald & Stokman, Ad C., 2005. "The pricing behaviour of firms in the euro area: new survey evidence," Working Paper Series 0535, European Central Bank.
  8. Sascha O. Becker & Klaus Wohlrabe, 2007. "Micro Data at the Ifo Institute for Economic Research – The “Ifo Business Survey”, Usage and Access," Ifo Working Paper Series Ifo Working Paper No. 47, Ifo Institute for Economic Research at the University of Munich.
  9. Claire Loupias & Patrick Sevestre, 2010. "Cost, Demand and Producer Price Changes," Documents de recherche 10-06, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  10. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series 1009, European Central Bank.
  11. Jon Steinsson & Emi Nakamura, 2007. "Monetary Non-Neutrality in a Multi-Sector Menu Cost Model," 2007 Meeting Papers 736, Society for Economic Dynamics.
  12. Mark Gertler & John Leahy, 2006. "A Phillips curve with an Ss foundation," Working Papers 06-8, Federal Reserve Bank of Philadelphia.
  13. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  14. Philip Vermeulen & Daniel Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2007. "Price setting in the euro area : some stylised facts from individual producer price data," Working Paper Research 111, National Bank of Belgium.
  15. Lein, Sarah M., 2010. "When do firms adjust prices? Evidence from micro panel data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 696-715, September.
  16. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
  17. Eichenbaum, Martin & Jaimovich, Nir & Rebelo, Sérgio, 2008. "Reference Prices and Nominal Rigidities," CEPR Discussion Papers 6709, C.E.P.R. Discussion Papers.
  18. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  19. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  20. Robert Lucas & Mike Golosov, 2004. "Menu Costs and Phillips Curves," 2004 Meeting Papers 144, Society for Economic Dynamics.
  21. Marco Bonomo & Carlos Carvalho, 2004. "Endogenous Time-Dependent Rules and Inflation Inertia," Macroeconomics 0402005, EconWPA, revised 19 May 2005.
  22. 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.
  23. Sascha O. Becker & Klaus Wohlrabe, 2008. "European Data Watch: Micro Data at the Ifo Institute for Economic Research – The “Ifo Business Survey”, Usage and Access," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(2), pages 307-319.
  24. Klaus Abberger & Manuel Birnbrich & Christian Seiler, 2009. "Der »Test des Tests« im Handel – eine Metaumfrage zum ifo Konjunkturtest," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 62(21), pages 34-41, November.
  25. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
  26. Jeffrey M Wooldridge, 2002. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," CeMMAP working papers CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  27. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
  28. Huang, Kevin X. D. & Liu, Zheng, 2001. "Production chains and general equilibrium aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 437-462, October.
  29. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November.
  30. N. Gregory Mankiw & Ricardo Reis, 2006. "Pervasive Stickiness," Harvard Institute of Economic Research Working Papers 2111, Harvard - Institute of Economic Research.
  31. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  32. Lombardo, Giovanni & Vestin, David, 2007. "Welfare implications of Calvo vs. Rotemberg pricing assumptions," Working Paper Series 0770, European Central Bank.
  33. Burstein, Ariel T., 2006. "Inflation and output dynamics with state-dependent pricing decisions," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1235-1257, October.
  34. Mackowiak, Bartosz Adam & Moench, Emanuel & Wiederholt, Mirko, 2009. "Sectoral Price Data and Models of Price Setting," CEPR Discussion Papers 7339, C.E.P.R. Discussion Papers.
  35. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
  36. Marco Bonomo & Carlos Carvalho & René Garcia, 2010. "State-dependent pricing under infrequent information: a unified framework," Staff Reports 455, Federal Reserve Bank of New York.
  37. Basu, Susanto, 1995. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," American Economic Review, American Economic Association, vol. 85(3), pages 512-31, June.
  38. Emi Nakamura, 2008. "Pass-Through in Retail and Wholesale," American Economic Review, American Economic Association, vol. 98(2), pages 430-37, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:12158. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alexandra Frank)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.