 Belief-dependent pricing decisionsSerafin Frache, Rodrigo Lluberas and Javier Turen Economic Modelling, 2024, vol. 132, issue C Abstract: How do inflation and idiosyncratic cost expectations affect firms’ price-adjusting decisions? Evidence on micro price adjustment has emphasized that price changes follow a fixed adjustment schedule, i.e., time-dependent pricing, or that they respond to the state of the economy, i.e., state-dependent pricing. We use firm expectation survey data to argue that price-adjustment decisions are also belief-dependent. While controlling for time- and state-dependent factors, we find that for the decision to adjust prices, inflation expectations do not play any role, but firms’ beliefs about their overall costs do. This highlights a robust correlation between idiosyncratic expectations and economic decisions. We show that the expectation channel is heterogeneous across firms and operates with a delay. When studying firms’ expected magnitude of price changes, the relevance of current inflation expectations is recovered apart from costs. Our findings provide empirical support for the belief-driven nature of pricing decisions and their economic implications. Keywords: Inflation expectations; Cost expectations; Firm surveys; Price adjustments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:132:y:2024:i:c:s026499932300442x DOI: 10.1016/j.econmod.2023.106630 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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