The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence

53 Pages Posted: 5 Nov 2010

See all articles by Silvia Fabiani

Silvia Fabiani

Bank of Italy

Martine Druant

National Bank of Belgium

Ignacio Hernando

Banco de España

Claudia Kwapil

Oesterreichische Nationalbank

Bettina Landau

European Central Bank (ECB)

Claire Loupias

Banque de France

Fernando Martins

Bank of Portugal - Research Department; University of Lisbon - School of Economics and Management; Universidade Lusíada, Lisboa

Thomas Mathae

Banque de France

Roberto Sabbatini

Bank of Italy

Harald Stahl

Deutsche Bundesbank - Economics Department

Ad C.J. Stokman

De Nederlandsche Bank - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2005

Abstract

This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, robust across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly time-dependent pricing rules while two-thirds allow for elements of state-dependence. The majority of firms take into account past and expected economic developments in their pricing decisions. Price stickiness is mainly driven by customer relationships - explicit and implicit contracts - and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.

Keywords: Price Setting, Nominal Rigidity, Real Rigidity, Inflation Persistence, Survey Data

JEL Classification: E30, D40

Suggested Citation

Fabiani, Silvia and Druant, Martine and Hernando, Ignacio and Kwapil, Claudia and Landau, Bettina and Loupias, Claire and Martins, Fernando and Mathae, Thomas and Sabbatini, Roberto and Stahl, Harald and Stokman, Ad C.J., The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence (November 1, 2005). Banque de France Working Paper No. NER-E 135. Available at SSRN: https://ssrn.com/abstract=1703429 or http://dx.doi.org/10.2139/ssrn.1703429

Silvia Fabiani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Martine Druant

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Ignacio Hernando

Banco de España ( email )

Madrid 28014
Spain
+34 91 338 5186 (Phone)
+34 91 338 5678 (Fax)

Claudia Kwapil

Oesterreichische Nationalbank ( email )

Otto-Wagner Platz 3
POB 61
Vienna 1011
Austria

Bettina Landau

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Claire Loupias

Banque de France ( email )

Paris
France

Fernando Martins

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal

University of Lisbon - School of Economics and Management ( email )

Rua do Quelhas, n.º 6
Lisbon, 1200-781
Portugal

Universidade Lusíada, Lisboa ( email )

Rua da Junqueira, 188 - 198
Lisboa, 1349-001
Portugal

Thomas Mathae

Banque de France ( email )

Paris
France

Roberto Sabbatini

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Harald Stahl

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

Ad C.J. Stokman

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

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