The Pricing Behaviour of Italian Firms: New Survey Evidence on Price Stickiness
57 Pages Posted: 28 Jun 2004
Date Written: April 2004
This study examines price setting behaviour of Italian firms on the basis of survey data. Prices are mostly fixed following mark-up rules, although customer-specific characteristics have a role in some sectors. Rival prices mostly affect price strategies of industrial firms. In reviewing their prices, firms follow either state-dependent rules or a combination of time and state-dependent ones. A considerable degree of price stickiness emerges; in 2002 most firms changed their price only once. Three explanations are ranked highest: explicit contracts, tacit collusive behaviour and the temporary nature of the shock. Prices respond asymmetrically to shocks, depending on the direction of the required adjustment and the source of the shock. Real rigidities play an important role in determining this asymmetry. Cost shocks impact more when prices have to be raised than when they have to be reduced; demand decreases are more likely to induce a price change than demand increases.
Keywords: Nominal rigidity, real rigidity, price-setting, inflation persistence, survey data
JEL Classification: E30, D40
Suggested Citation: Suggested Citation