The Patterns and Determinants of Price Setting in the Belgian Industry

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in WO R K I N G PA P E R S E R I E S The Eurosystem Inflation Persistence NetworkThis paper reflects research conducted within the Inflation Persistence Network (IPN), a team of Eurosystem economists undertaking joint research on inflation persistence in the euro area and in its member countries. The research of the IPN combines theoretical and empirical analyses using three data sources: individual consumer and producer prices; surveys on firms' price-setting practices; aggregated sectoral, national and area-wide price indices. Patterns, causes and policy implications of inflation persistence are addressed.Since June 2005 the IPN is chaired by Frank Smets; Stephen Cecchetti (Brandeis University), Jordi Galí (CREI, Universitat Pompeu Fabra) and Andrew Levin (Board of Governors of the Federal Reserve System) act as external consultants and Gonzalo Camba-Méndez as Secretary.The refereeing process is co-ordinated by a team composed of Günter Coenen (Chairman), Stephen Cecchetti, Silvia Fabiani, Jordi Galí, Andrew Levin, and Gonzalo Camba-Méndez. The paper is released in order to make the results of IPN research generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the Eurosystem. C O N T E N T SAbstract 4 Non-technical summary 5

Nonuniform Staggered Prices and Output Persistence

“…The first modification, underlined by, for example, Eichenbaum and Fisher (), introduces real rigidities, which help to reconcile the New Keynesian model with microevidence on the frequency of price adjustment. The second modification is consistent with empirical studies of the degree of synchronization in price setting (see, e.g., Cornille and Dossche ).…”

“…In contrast, considerable synchronization is typically found at low levels of aggregation. Using Belgian producer price data, Cornille and Dossche () find that for about 80% of the product categories at the NACE four‐digit level, the FK index lies between 0.25 and 0.75 . Thus, there is a considerable degree of synchronization within individual markets.…”

What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?

“…For instance, the frequency of consumer price change depends on the variability of input prices (Hoffmann and Kurz-Kim (2006)) and differences in the cost structure help explain differences in the degree of producer price flexibility (Álvarez, Burriel, and Hernando (2005a) and Cornille and Dossche (2006)), a result also found with survey data Hernando (2005, 2007)). Specifically, the share of labour costs in variable costs negatively affects the frequency of price change -given that wages do not change often-, whereas the share of costs of intermediate goods in variable costs has a positive impact.…”

Lumpy Price Adjustments: A Microeconometric Analysis

“…However, as the estimation procedure is particularly time consuming, 15 the estimation has only been conducted on a subset of randomly selected product categories, with price trajectories of at least 20 months. 16 As a result we end up estimating our baseline model for 98 product 13 " is now four times larger as ! while in the preceding exercise, " was one half of !…”