Lumpy Price Adjustments: A Microeconometric Analysis

Abstract

This paper presents a simple model of state-dependent pricing that allows iden-ti…cation of the relative importance of the degree of price rigidity that is inherent to the price setting mechanism (intrinsic) and that which is due to the price's driving variables (extrinsic). Using two data sets consisting of a large fraction of the price quotes used to compute the Belgian and French CPI, we are able to assess the role of intrinsic and extrinsic price stickiness in explaining the occurrence and magnitude of price changes at the outlet level. We …nd that infrequent price changes are not necessarily associated with large adjustment costs. Indeed, extrinsic rigidity appears to be signi…cant in many cases. We also …nd that asymmetry in the price adjustment could be due to trends in marginal costs and/or desired mark-ups rather than asymmetric cost of adjustment bands.JEL Classi…cations: C51, C81, D21.

When do firms adjust prices? Evidence from micro panel data

“…Aucremanne and Druant (2005) proxy the deviation of the current price from its desired level by the accumulated rate of inflation. Dhyne et al (2006) use econometric techniques to identify the size of shocks, both common and idiosyncratic, from the observations of size and frequency of price adjustments in the micro data underlying the calculation of the CPI. such as dummies for changing prices every n periods, to proxy for Taylor contracting, and seasonal dummies.…”

Price Changes - Stickiness and Internal Coordination in Multiproduct Firms

“…This result hints at the relevance of menu cost models. Likewise, menu costs are found to affect firm decisions in an analysis of Dhyne et al (2011) and Honoré et al (2012).…”

Cyclical non-stationarity in commodity prices

“…Despite the range of tests available, little conclusive evidence exists on whether commodity price cycles are duration dependent or not. In particular, it can be difficult to distinguish between irregular cycles and other explanations for dynamic responses to exogenous shocks like lumpy prices (Dhyne et al 2011). Also, rejecting duration dependence requires observations over multiple cycles, and as such a substantial time-series of observations.…”