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When do firms adjust prices? Evidence from micro panel data

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  • Lein, Sarah M.

Abstract

The price-setting behavior of manufacturing firms is examined using a large panel of quarterly firm survey data from 1984 to 2007, which allows changes in firms' prices to be linked to several firm-specific variables. The results show that state-dependent pricing is clearly present in a low-inflation environment and that variables measuring the current situation of the firm, especially costs for intermediate products, are important determinants of price adjustments. Compared to purely time-dependent features, the state-dependent variables significantly add to the explanatory power of a price adjustment probability model. Macroeconomic factors are significant but contribute little in terms of the goodness of fit. Furthermore, when taking into account sticky plan models by excluding possibly predetermined price changes, the importance of state-dependent factors becomes even greater.

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  • 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.
    • Handle: RePEc:eee:moneco:v:57:y:2010:i:6:p:696-715
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    More about this item

    Keywords

    Price setting behavior Time-dependent pricing State-dependent pricing Sticky plans Costs;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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