Time-Dependency in Producers' Price Adjustments: Evidence from Micro Panal Data

38 Pages Posted: 28 Aug 2018

See all articles by Øivind Anti Nilsen

Øivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Per Marius Pettersen

Norwegian School of Economics (NHH) - Department of Economics

Joakim Bratlie

Norwegian School of Economics (NHH) - Department of Economics

Date Written: July 03, 2018

Abstract

Existing micro evidence of firms’ price changes tends to show a downward sloping hazard rate – the longer the price of a product has remained the same, the less likely it is that the price will change. Using a panel of Norwegian plant- and product-specific prices, we also find a downward sloping hazard when applying a Kaplan–Meier model. After having controlled for both observed and unobserved characteristics, we find flat hazards with spikes in the first and twelfth months. This suggests time-dependent price-setting by at least some of the producers. The spike after 12 months might be explained by seasonal demand effects, but also by the pricing season effect related to information acquisition and processing, negotiation and signing of price contracts. The revealed price adjustment pattern is at odds with the predictions of the Calvo model, a central element in many dynamic stochastic general equilibrium models, as this assumes constant frequencies of price adjustments over time. Our empirical findings instead point to a modified Calvo model where firms in some periods experience lower menu costs. Finally, the empirical findings may have implications for the effectiveness of monetary policy interventions.

Keywords: price-setting, micro data

JEL Classification: E310, D220, C410

Suggested Citation

Nilsen, Oivind Anti and Pettersen, Per Marius and Bratlie, Joakim, Time-Dependency in Producers' Price Adjustments: Evidence from Micro Panal Data (July 03, 2018). CESifo Working Paper Series No. 7138. Available at SSRN: https://ssrn.com/abstract=3235323

Oivind Anti Nilsen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Per Marius Pettersen

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Joakim Bratlie

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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