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Time or State Dependent Price Setting Rules? Evidence from Portuguese Micro Data

Carlos Marques (), Daniel Dias () and João Santos Silva ()

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: In this paper we analyse the ability of time and state dependent price setting rules to explain durations of price spells or the probability of changing prices.Our results suggest that simple time dependent models cannot be seen as providing a reasonable approximation to the data and that state dependent models are required to fully characterise the price setting behaviour of Portuguese firms. Inflation, the level of economic activity and the magnitude of the last price change emerge as relevant variables a.ecting the probability of changing prices. Moreover, it is seen that the impact di.ers for negative and positive values of these covariates.

JEL-codes: C41 D40 E31 (search for similar items in EconPapers)
Date: 2005
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