Time or State Dependent Price Setting Rules? Evidence from Portuguese Micro Data

42 Pages Posted: 25 Aug 2005

Date Written: August 2005

Abstract

In this paper we analyse the ability of time and state dependent price setting rules to explain durations of price spells or the probability of changing prices. Our results suggest that simple time dependent models cannot be seen as providing a reasonable approximation to the data and that state dependent models are required to fully characterise the price setting behaviour of Portuguese firms. Inflation, the level of economic activity and the magnitude of the last price change emerge as relevant variables affecting the probability of changing prices. Moreover, it is seen that the impact differs for negative and positive values of these covariates.

Keywords: CPI data, Hazard functions, Inflation

JEL Classification: C41, D40, E31

Suggested Citation

Dias, Daniel and Robalo Marques, Carlos Manuel and Santos Silva, João M.C, Time or State Dependent Price Setting Rules? Evidence from Portuguese Micro Data (August 2005). ECB Working Paper No. 511, Available at SSRN: https://ssrn.com/abstract=770245 or http://dx.doi.org/10.2139/ssrn.770245

Daniel Dias

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Carlos Manuel Robalo Marques (Contact Author)

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

João M.C Santos Silva

University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom

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