Price rigidities, input costs, and inflation expectations: understanding firms’ pricing decisions from micro data

Marianna Riggi () and Alex Tagliabracci

No 733, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Using a rich survey panel of Italian businesses, this paper provides new empirical evidence on the drivers of firms’ pricing decisions over the last six years. We document a set of interesting results. First, the share of firms adjusting their prices in each period co-moves with current inflation. Moreover, firms’ choices are consistent with a hybrid framework that lies between time- and state-dependent models of price setting. Second, firms’ pricing decisions respond to past pricing choices, changes in input costs and beliefs about future developments of their own prices, rather than expectations on aggregate inflation. Third, firms’ price changes are also connected to their observable characteristics: size class, sector of activity and exposure to foreign markets. Fourth, the heterogeneity in price changes depends strongly on the dispersion of beliefs concerning future price variations, while input prices only explain a limited part. Our results shed light on the presence of different channels in the formation of firms’ prices, pointing toward the need of considering them together to understand their pricing decisions and the dynamics of inflation.

Keywords: firms’ pricing decisions; price rigidities; input costs pass-through; expectations; survey data (search for similar items in EconPapers)
JEL-codes: D22 D24 E31 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.bancaditalia.it/pubblicazioni/qef/2022-0733/QEF_733_22.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_733_22

Access Statistics for this paper

More papers in Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().