Summary of Results for the Euro Area

Abstract

This chapter summarizes the results of firms' pricing practices collected through surveys conducted by the national central banks of nine countries. The results suggest that the model of perfect competition with the law of one price is not the blueprint for euro area markets: markup pricing is the dominant practice adopted by firms in setting prices and price discrimination, across customers and markets, and it is very common. Around one-third of the companies follow mainly time-dependent rules while the remaining two-thirds use pricing rules with some element of state dependence. Firms review prices with a frequency between one and three times per year and take into account a wide range of information including expectations, although about one-third of them follows a purely backward-looking behavior. Price movements in response to shocks are asymmetrical: price increases are mostly affected by cost shocks, and price reductions mostly affected by changes in market conditions (demand and competitors' prices).

Price Setting Practices in Greece: Evidence From a Small‐scale Firm‐level Survey

“…The remaining 42 percent of firms pursue either a mixture of time‐dependent and state‐dependent pricing (24.4 percent) or report that neither strategy is relevant for them (17.5 percent). Findings from the Inflation Persistence Framework (IPN) (Fabiani et al ., ) suggest that the percentage of firms following a pure state‐dependent pricing strategy is less popular in the EA than in Greece (20 percent in the EA versus 32 percent in Greece).…”

“…The paper takes a micro perspective and tries to document price setting practices, the strategies favoured in reaction to shocks and to link these to company characteristics. As suggested in the literature cross‐industry variation in pricing behaviour (strategies and adjustments) is due to differences in production structures, in the importance of contractual agreements – which depends on the nature of the product/service produced, in the significance of pricing thresholds, in the relative shares of final customers across industries (see, inter alia , Hall et al ., ; Fabiani et al ., ). Small firms are also more likely to face higher costs of price adjustment thus leading to more rigid prices.…”

Some Observations on the High‐frequency Versions of a Standard New‐keynesian Model

“…Fabiani et al . (, p. 41) analyse data from surveys of 11,000 firms which were conducted by the national banks of nine European countries. The median number of price changes per year in these different countries is equal to one, which implies .…”

Price adjustment in German manufacturing: evidence from two merged surveys

“…As this survey lacks information that we considered to be crucial for understanding price setting, the Bundesbank decided to join a survey by other national central banks of the euro area (Fabiani et al, 2007). Hence, in mid-2004 the participants of the business-tendency survey were asked to complete a special questionnaire on producer price setting, consisting of two parts; 'general information' and 'information regarding price formation'.…”

“…Similar studies are available for the US by Blinder et al (1998), which inspired the Eurosystem's study, for the UK by Hall et al (1997Hall et al ( , 2000, for Sweden by Apel et al (2005), and for Canada by Amirault et al (2004). Fabiani et al (2007) compare the main results within the euro area and with the aforementioned countries. In Germany, Wied-Nebbeling conducted two surveys on price setting in manufacturing in 1971and 1983(Wied-Nebbeling, 1985.…”