The Timing of Price Changes and the Role of Heterogeneity
While price-setting models usually suggest constant or increasing hazard functions for price changes, empirical studies often find decreasing hazards, possibly due to misspecified or neglected heterogeneity. This paper attempts to disentangle the downward bias into various sources: observed and unobserved heterogeneity which can be either constant or time-varying. Based on micro data from the Swiss CPI, the paper finds that in order to resolve the downward bias of the hazard function for price changes, we have to (i) control for time-varying heterogeneity in addition to cross-sectional factors and (ii) exclude temporary price changes such as sales prices from the data set. Among the time-varying factors affecting the probability of price changes, various proxies of firms' marginal costs seem to be key. The empirical findings presented in this paper are consistent with recent menu cost models which stress the role of time-varying heterogeneity and temporary price cuts for price setting.
|Date of creation:||2010|
|Contact details of provider:|| Postal: Börsenstrasse 15, P. O. Box, CH - 8022 Zürich|
Phone: +41 58 631 31 11
Fax: +41 58 631 39 11
Web page: http://www.snb.ch/en/ifor/research/
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.:
- Josef Baumgartner & Ernst Glatzer & Fabio Rumler & Alfred Stiglbauer, 2005.
"How Frequently Do Consumer Prices Change in Austria? Evidence from Micro CPI Data,"
101, Oesterreichische Nationalbank (Austrian Central Bank).
- Baumgartner, Josef & Glatzer, Ernst & Rumler, Fabio & Stiglbauer, Alfred, 2005. "How frequently do consumer prices change in Austria? Evidence from micro CPI data," Working Paper Series 0523, European Central Bank.
- Jeffrey R. Campbell & Benjamin Eden, 2014.
"Rigid Prices: Evidence From U.S. Scanner Data,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 423-442, 05.
- 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.
- Robert Lucas & Mike Golosov, 2004.
"Menu Costs and Phillips Curves,"
2004 Meeting Papers
144, Society for Economic Dynamics.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007.
"Price Stickiness in Ss Models: New Interpretations of Old Results,"
952, Economic Growth Center, Yale University.
- Caballero, Ricardo J. & Engel, Eduardo M.R.A., 2007. "Price stickiness in Ss models: New interpretations of old results," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 100-121, September.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007. "Price Stickiness in Ss Models: New Interpretations of Old Results," Cowles Foundation Discussion Papers 1603, Cowles Foundation for Research in Economics, Yale University.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007. "Price Stickiness in Ss Models: New Interpretations of Old Results," Levine's Bibliography 321307000000000856, UCLA Department of Economics.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007. "Price Stickiness in Ss Models: New Interpretations of Old Results," NBER Working Papers 12945, National Bureau of Economic Research, Inc.
- Eduardo Engel & Ricardo Caballero, 2007. "Price stickiness in Ss models: new interpretations for old results," 2007 Meeting Papers 903, Society for Economic Dynamics.
- Andrew S. Caplin & Daniel F. Spulber, 1987.
"Menu Costs and the Neutrality of Money,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 102(4), pages 703-725.
- Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1415-1464.
- Denis Fougère & Hervé Le Bihan & Patrick Sevestre, 2007.
"Heterogeneity in consumer price stickiness. A microeconometric investigation,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- Fougere, Denis & Le Bihan, Herve & Sevestre, Patrick, 2007. "Heterogeneity in Consumer Price Stickiness: A Microeconometric Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 247-264, July.
- Denis Fougère & Hervé Le Bihan & Patrick Sevestre, 2006. "Heterogeneity in Consumer Price Stickiness : A Microeconometric Investigation," Working Papers 2006-26, Centre de Recherche en Economie et Statistique.
- Fougère, D. & Le Bihan, H. & Sevestre, P., 2005. "Heterogeneity in Consumer Price Stickiness: A Microeconometric Investigation," Working papers 137, Banque de France.
- Fougère, Denis & Le Bihan, Hervé & Sevestre, Patrick, 2005. "Heterogeneity in Consumer Price Stickiness: A Microeconometric Investigation," CEPR Discussion Papers 5300, C.E.P.R. Discussion Papers.
- Fougère, Denis & Le Bihan, Hervé & Sevestre, Patrick, 2005. "Heterogeneity in consumer price stickiness: a microeconometric investigation," Working Paper Series 0536, European Central Bank.
- Dias, D.A. & Marques, C. Robalo & Santos Silva, J.M.C., 2007. "Time- or state-dependent price setting rules? Evidence from micro data," European Economic Review, Elsevier, vol. 51(7), pages 1589-1613, October.
- Campbell Leith & Jim Malley, 2003.
"A Sectoral Analysis of Price-Setting Behavior in US Manufacturing Industries,"
CESifo Working Paper Series
984, CESifo Group Munich.
- Campbell Leith & Jim Malley, 2007. "A Sectoral Analysis of Price-Setting Behavior in U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 335-342, May.
- Campbell Leith & Jim Malley, "undated". "A Sectoral Analysis of Price-Setting Behavior in US Manufacturing Industries," Working Papers 2003_7, Business School - Economics, University of Glasgow, revised May 2003.
- Richard Dennis, 2008.
"The Frequency Of Price Adjustment And New Keynesian Business Cycle Dynamics,"
CAMA Working Papers
2008-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Richard Dennis, 2006. "The frequency of price adjustment and New Keynesian business cycle dynamics," Working Paper Series 2006-22, Federal Reserve Bank of San Francisco.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Patrick J. Kehoe & Virgiliu Midrigan, 2007. "Sales and the real effects of monetary policy," Working Papers 652, Federal Reserve Bank of Minneapolis.
- 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.
- Daniel Kaufmann, 2008. "Price-Setting Behaviour in Switzerland Evidence from CPI Micro Data," Working Papers 2008-15, Swiss National Bank.
- Roberto G. Gutierrez & Shana Carter & David M. Drukker, 2001. "On boundary-value likelihood-ratio tests," Stata Technical Bulletin, StataCorp LP, vol. 10(60).
When requesting a correction, please mention this item's handle: RePEc:snb:snbwpa:2010-02. 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: (Enzo Rossi)
If references are entirely missing, you can add them using this form.