Time-dependent or state-dependent price setting? Micro-evidence from German metal-working industries

Harald Stahl

No 534, Working Paper Series from European Central Bank

Abstract: Price setting in German metal-working industries is analysed using a monthly panel of individual price data for more than 2,000 plants covering the period from 1980 to 2001. Motivated by several models in the literature, a duration model is estimated. Price changes can be explained by a combination of state-dependence and time-dependence. Time-dependence clearly dominates and is strongest if a price increase follows a price increase. This occurs most likely after 1, 4, 5, 8, 9, ... quarters. This time-dependent effect is so strong and cost and price increases are so weak in the observed period that adjustment occurs before the sticky price sufficiently deviates from the flexible price, as traditional menu cost models assume. State-dependence seems to be most relevant in periods with decreasing demand. Then firms reduce prices and the time between two price cuts only rarely exceeds four months. JEL Classification: D43, E31, L11

Keywords: business survey data; duration analysis; price rigidity (search for similar items in EconPapers)
Date: 2005-10
References: Add references at CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp534.pdf (application/pdf)

Related works:
Working Paper: Time-dependent or state-dependent price setting? Micro-evidence from German metal-working industries (2005)
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:ecb:ecbwps:2005534

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().