Identifying Price Reviews by Firms: An Econometric Approach

Abstract

Price reviews are a potentially costly activity. A significant fraction of unchanged prices may stem from firms not reviewing prices, rather than from obstacles to changing prices per se, such as menu costs. In this paper, we disentangle these two causes of price stickiness by estimating an inflated ordered probit model on a panel of French manufacturing firms. The results point to a low frequency of price reviews, suggestive of the relevance of information costs as a determinant of the observed price stickiness. In view of the “inattentive producers” literature, pointing that the source of price rigidity matters, this is suggestive of a large real effect of monetary policy.

Price Adjustment in the Euro Area in the Low-Inflation Period: Evidence from Consumer and Producer Micro Price Data

“…Another source of information on firms' price-setting behaviour are monthly business surveys, which usually collect qualitative variables on price changes and expected price changes on a monthly basis. Several studies have used this type of data to document new findings on how producer prices adjust to shock (Loupias and Sevestre, 2013, for France) or to document patterns of price stickiness (Andrade et al, 2022, and Harris et al, 2020, for France, Bachmann et al, 2019, for Germany and Lein, 2010. One difficulty with this type of survey data is that they usually contain no quantitative information, so it is not straightforward to obtain information from them on individual price changes, which is useful for theoretical models.…”

Some Implications of Micro Price-Setting Evidence for Inflation Dynamics and Monetary Transmission

“…Loupias and Sevestre (2013) andHarris et al (2020) have documented several facts on price stickiness using these survey data.…”