Lumpy Price Adjustments: A Microeconometric Analysis

64 Pages Posted: 22 May 2007

See all articles by Emmanuel Dhyne

Emmanuel Dhyne

National Bank of Belgium

Catherine Fuss

National Bank of Belgium

M. Hashem Pesaran

University of Southern California - Department of Economics; University of Cambridge - Trinity College (Cambridge)

Patrick Sevestre

Aix-Marseille University

Multiple version iconThere are 3 versions of this paper

Date Written: May 2007

Abstract

This paper presents a simple model of state-dependent pricing that allows identification of the relative importance of the degree of price rigidity that is inherent to the price setting mechanism (intrinsic) and that which is due to the price's driving variables (extrinsic). Using two data sets consisting of a large fraction of the price quotes used to compute the Belgian and French CPI, we are able to assess the role of intrinsic and extrinsic price stickiness in explaining the occurrence and magnitude of price changes at the outlet level. We find that infrequent price changes are not necessarily associated with large adjustment costs. Indeed, extrinsic rigidity appears to be significant in many cases. We also find that asymmetry in the price adjustment could be due to trends in marginal costs and/or desired mark-ups rather than asymmetric cost of adjustment bands.

Keywords: sticky prices, nominal intrinsic and extrinsic rigidities, micro non-linear panels

JEL Classification: C51, C81, D21

Suggested Citation

Dhyne, Emmanuel and Fuss, Catherine and Pesaran, M. Hashem and Sevestre, Patrick, Lumpy Price Adjustments: A Microeconometric Analysis (May 2007). IZA Discussion Paper No. 2793; CESifo Working Paper Series No. 2010; IEPR Working Paper No. 07.18. Available at SSRN: https://ssrn.com/abstract=987845

Emmanuel Dhyne

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Catherine Fuss

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

M. Hashem Pesaran (Contact Author)

University of Southern California - Department of Economics

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

University of Cambridge - Trinity College (Cambridge) ( email )

United Kingdom

Patrick Sevestre

Aix-Marseille University ( email )

3 Avenue Robert Schuman
3 Avenue Robert Schuman,
Aix-en-Provence, 13628
France

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