Lumpy Price Adjustments: A Microeconometric Analysis

National Bank of Belgium Working Paper No. 100

75 Pages Posted: 9 Oct 2010

See all articles by Emmanuel Dhyne

Emmanuel Dhyne

National Bank of Belgium

Catherine Fuss

National Bank of Belgium

M. Hashem Pesaran

University of Southern California - Department of Economics; University of Cambridge - Trinity College (Cambridge)

Patrick Sevestre

Aix-Marseille University

Multiple version iconThere are 3 versions of this paper

Date Written: October 12, 2006

Abstract

This paper presents a simple model of state-dependent pricing that allows identifying the relative importance of both nominal and real factors in price rigidity. Using two rich datasets consisting of a large fraction of the price quotes used to compute the Belgian and French Consumer Price Indices, we are able to evaluate, the importance of the menu costs and to discriminate between idiosyncratic and common shocks that affect the marginal cost and/or the desired mark-up at the outlet level. We find that infrequent price changes are not necessarily associated with large menu costs. Indeed, real rigidities appear to play a significant role. We also find that asymmetry in the price adjustment may result from a trend in marginal costs and/or desired mark-ups rather than from asymmetric menu costs.

Keywords: Sticky prices, menu costs, nominal and real rigidities, micro panels

JEL Classification: C51, C81, D21

Suggested Citation

Dhyne, Emmanuel and Fuss, Catherine and Pesaran, M. Hashem and Sevestre, Patrick, Lumpy Price Adjustments: A Microeconometric Analysis (October 12, 2006). National Bank of Belgium Working Paper No. 100. Available at SSRN: https://ssrn.com/abstract=1688935 or http://dx.doi.org/10.2139/ssrn.1688935

Emmanuel Dhyne (Contact Author)

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Catherine Fuss

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

M. Hashem Pesaran

University of Southern California - Department of Economics

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

University of Cambridge - Trinity College (Cambridge) ( email )

United Kingdom

Patrick Sevestre

Aix-Marseille University ( email )

3 Avenue Robert Schuman
3 Avenue Robert Schuman,
Aix-en-Provence, 13628
France

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