When do firms adjust prices? Evidence from micro panel data

Abstract

This paper analyzes the price setting behavior of firms using data from a large panel of quarterly firm surveys from 1984 to 2006. These data allow to track changes in firms' prices, their price expectations and several other firm-specific developments such as changes in costs for input products and capacity utilization rates. The analysis shows that state dependent pricing is clearly important and that variables measuring the current situation of the firm add a lot to the explanatory power of a price adjustment probability model, compared to purely time dependent features. Although the rate of inflation is a significant explanatory variable, the inclusion of macroeconomic variables adds only marginally to the explanatory power of the model with the firm specific variables. Furthermore, when taking into account sticky plan models by excluding possibly predetermined price changes, the importance of state dependent factors becomes even larger. The data also display features that suggest that sticky information plays a role for price setting.JEL classification: E31, E32, E50.

The NIRCU and the Phillips curve: an approach based on micro data

“…12 Note that we have not yet seasonally adjusted. Hence, the volatility might partially be caused by the seasonality and Taylor price setting found in earlier studies (Lein 2010). Furthermore, as Lein and Köberl (2009) show, firms that are constrained to adjust their capacity in the short run are more likely to adjust prices.…”

“…Nevertheless, we look only at pricing behaviour and utilization rates of the manufacturing sector. As shown in Lein (2010), about 30% of prices in the manufacturing sector change per quarter, which suggests that firms change prices slightly more often than once a year. Meanwhile, prices in other sectors are likely to change more or less often, owing to a heterogeneity in price setting documented in the price-setting literature.…”

“…We have already excluded the firms that did not respond to the questions relevant for the construction of the indicator in this paper. Therefore, the figures do not exactly fit those reported inLein (2010). 5 SeeLein (2010) for more details on the survey and the survey procedure.…”

“…Therefore, the figures do not exactly fit those reported inLein (2010). 5 SeeLein (2010) for more details on the survey and the survey procedure. 6 For example, Cuche-Curtis,Hall and Zanetti (2009) show that the mean revision of GDP growth rates amounts to 0.82 to 0.64pp even five to eight years after the initial release.…”

Asymmetries in Price‐Setting Behavior: New Microeconometric Evidence from Switzerland

“…They usually find that the frequency of price increases comoves with inflation. Similarly, Lein (2010) shows that higher inflation reduces the probability of observing price decreases and raises the probability of observing price increases for Swiss manufacturing firms. With the exception of Chen et al (2008), these studies do not, however, address the question whether price increases would still be prevalent if aggregate inflation was stabilized at zero.…”