Belief-Dependent Pricing Decisions

Serafin Frache, Rodrigo Lluberas and Javier Turen

No 2021007, Documentos de trabajo from Banco Central del Uruguay

Abstract: This paper studies the effects of inflation and idiosyncratic cost expectations on firms’ price-adjusting decisions. Evidence of price-settings frictions using micro data has been studied through the lens of both time-dependent and state-dependent models. Using data from a unique survey, we argue that priceadjustment decisions are also belief-dependent. While controlling for time- and state- ependent factors, we find that, for the extensive margin of price-changes, expectations of inflation do not play any role, but firms’ beliefs about their overall costs do. The expectation channel is, however, heterogeneous across firms, driven exclusively by large companies, and operates with a delay. Nonetheless, when looking at firms’ beliefs about the intensive margin of price-changes, besides costs, the relevance of current inflation expectations is recovered. Our evidence supports the presence of price rigidities at the firm level but is also consistent with theories of limited attention.

Keywords: inflation expectations; cost expectations; firm surveys; price adjustments (search for similar items in EconPapers)
JEL-codes: D22 D84 E31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-bec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Belief-dependent pricing decisions (2024)
Working Paper: Belief-Dependent Pricing Decisions (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bku:doctra:2021007

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