The Price Setting Behaviour of Spanish Firms: Evidence from Survey Data

72 Pages Posted: 10 Nov 2005

Date Written: October 2005

Abstract

This paper reports the results of a survey carried out by the Banco de Espana on a sample of around 2000 Spanish firms to deepen the understanding of firms' price setting behaviour. The main findings may be summarised as follows. Most Spanish firms are price setters that use predominantly state-dependent rules or a combination of time- and statedependent rules when reviewing their prices. Changes in costs are the main factor underlying price increases, whereas changes in market conditions (demand and competitors' prices) are the main driving forces of price decreases. The degree of price flexibility is directly related to the share of energy inputs over total costs and to the intensity of competition, whereas it is inversely linked to the labour share. The three theories of price stickiness that receive the highest empirical support are implicit contracts, coordination failure and explicit contracts.

Keywords: price setting, price stickiness, survey data

JEL Classification: D40, E31

Suggested Citation

Álvarez, Luis J. and Hernando, Ignacio, The Price Setting Behaviour of Spanish Firms: Evidence from Survey Data (October 2005). ECB Working Paper No. 538. Available at SSRN: https://ssrn.com/abstract=827248

Luis J. Álvarez (Contact Author)

Banco de España ( email )

Madrid 28014
Spain

Ignacio Hernando

Banco de España ( email )

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

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