Structural estimation of price adjustment costs in the European car market

Carlos Noton

International Journal of Industrial Organization, 2016, vol. 49, issue C, 105-147

Abstract: This paper characterizes the price adjustment costs that are consistent with observed price dynamics in the European car market. We estimate a dynamic model of international multiproduct firms that set prices in different currencies while facing price adjustment costs. We find that large price adjustment costs are not needed to rationalize the substantial degree of price inertia we observe in the data. Intuitively, since GDP, wages and exchange rates exhibit such a large degree of autocorrelation, small adjustment costs can explain very persistent prices. Also, accounting for country-specific price sensitivity, wages, GDP and exchange rates, the price adjustment costs should differ substantially across producers and markets to match the data.

Keywords: Exchange rate pass-through; Structural estimation; Price adjustment costs (search for similar items in EconPapers)
JEL-codes: F10 F31 L11 L16 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Structural Estimation of Price Adjustment Costs in the European Car Market (2013)
Working Paper: Structural Estimation of Price Adjustment Costs in the European Car Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:49:y:2016:i:c:p:105-147

DOI: 10.1016/j.ijindorg.2016.09.001

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