Costs, Demand, and Producer Price Changes

Abstract

In 2010 all ECB publications feature a motif taken from the €500 banknote. COSTS, DEMAND, AND PRODUCER PRICE CHANGES 1 by Claire Loupias 2 and Patrick Sevestre 3 1 This study was initiated in the context of the Eurosystem Inflation Persistence Network. We are grateful to R. Ricart and B. Fougier for having provided us with the series of the monthly manufacturing business surveys of the Banque de France, as well as to the DARES (Direction de l. Animation de la Recherche, des Études et des Statistiques, French Ministry of Labor), for having provided the data about wages. Thanks also to P. Franceschi and A. Gubian, from the ACOSS (Agence Centrale des Organismes de Sécurité Sociale) who gave us access to the monthly industry level wage bill series used in previous versions of this paper. We are also strongly indebted to T. Heckel, H. Le Bihan, E. Gautier and to colleagues from the Wage Dynamics Network of the Eurosystem for helpful discussions. We would like to thank also the participants to seminars at INRA

Intermittent Price Changes in Production Plants: Empirical Evidence Using Monthly Data

“…We comment on this further when testing the robustness of our model. 11 An argument against letting demand shocks from technology and/or costs be treated identically is that firms react quicker to positive than to negative cost shocks, but slower to positive than to negative demand shocks (see, for instance, Loupias and Sevestre, 2012;Dias et al 2015). Differencing between types of shocks would require a more sophisticated model than the one presented here.…”

“…The study ignores, however, the magnitude of price changes, because only the frequency and the duration of inaction are accounted for. Loupias and Sevestre (2012), on the other hand, include the magnitude of price changes, and find that when firms face cost variations, they appear to adjust their prices more often and more rapidly upwards than downwards.…”

Patterns and Determinants of Price Changes: Analysing Individual Consumer Prices in Austria

“…However, this assumption may be questioned in our case since the inclusion of variables that are related to past price changes, like the cumulated time or cumulated sectoral inflation since the last price change, induces an implicit dynamic structure to the panel that may result in endogeneity of the state‐dependent regressors (see Card and Sullivan, 1988 for a similar argument). In order to tackle this potential endogeneity problem, we follow the approach adopted in Loupias and Sevestre (2010) which goes back to the method proposed by Rivers and Vuong (1988). This approach consists of a two‐stage procedure where, in the first stage, we regress all potentially endogenous variables on a set of instrumental variables and then, in the second stage, include the residuals of these regressions in our probit model as supplementary regressors.…”

“…Specifically, we regress the elapsed spell duration and the accumulated product‐specific inflation and, in another specification, additionally the absolute magnitude and direction of the last price change and the interaction effect of these two on the lagged first differences of all potentially endogenous variables up to lag six (the average spell length in our sample is slightly below six months) and on the remaining exogenous regressors. The idea here is that by including a fixed number of lags as instruments, whatever the duration of the spell, it is expected to break the relation between past price decisions and the endogenous variables (see Loupias and Sevestre, 2010). Intuitively, this is similar to the widely applied approach of instrumenting endogenous variables by their own lagged first differences (by using these differences, the instruments are made uncorrelated with the error terms) and other exogenous variables in dynamic panels (see, e.g., Arellano and Bover, 1995).…”

“…Furthermore, to tackle the initial conditions problem of dynamic panels which may also lead to endogeneity of the state‐dependent variables, we adopt the approach proposed by Wooldridge (2005) in one of our specifications. This is done by including the first observation of the dependent variable of each price trajectory as an additional regressor (see also Loupias and Sevestre, 2010).…”