Why Are Some Prices Stickier Than Others? Firm-Data Evidence on Price Adjustment Lags

43 Pages Posted: 6 Mar 2011

See all articles by Daniel A. Dias

Daniel A. Dias

University of Illinois at Urbana-Champaign - Department of Economics; Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE)

Carlos Robalo Marques

Bank of Portugal - Economic Research Department

Fernando Martins

Bank of Portugal - Research Department; University of Lisbon - School of Economics and Management; Universidade Lusíada, Lisboa

J. M.C. Santos Silva

University of Surrey

Date Written: February 18, 2011

Abstract

Infrequent price changes at the firm level are now well documented in the literature. However, a number of issues remain partly unaddressed. This paper contributes to the literature on price stickiness by investigating the lags of price adjustments to different types of shocks. We find that adjustment lags to cost and demand shocks vary with firm characteristics, namely the firm’s cost structure, the type of pricing policy, and the type of good. We also document that firms react asymmetrically to demand and cost shocks, as well as to positive and negative shocks, and that the degree and direction of the asymmetry varies across firms.

Keywords: Firm heterogeneity, Panel-ordered probit, Real rigidities, Survey data

JEL Classification: C41, D40, E31

Suggested Citation

Dias, Daniel A. and Robalo Marques, Carlos and Martins, Fernando and Santos Silva, João M.C, Why Are Some Prices Stickier Than Others? Firm-Data Evidence on Price Adjustment Lags (February 18, 2011). ECB Working Paper No. 1306, Available at SSRN: https://ssrn.com/abstract=1763867

Daniel A. Dias (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
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Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE) ( email )

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Carlos Robalo Marques

Bank of Portugal - Economic Research Department ( email )

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Lisboa, 1100-150
Portugal

Fernando Martins

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal

University of Lisbon - School of Economics and Management ( email )

Rua do Quelhas, n.º 6
Lisbon, 1200-781
Portugal

Universidade Lusíada, Lisboa ( email )

Rua da Junqueira, 188 - 198
Lisboa, 1349-001
Portugal

João M.C Santos Silva

University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom

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