Understanding Price Stickiness: Firm‐Level Evidence on Price Adjustment Lags and Their Asymmetries

18 Pages Posted: 8 Sep 2015

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: October 2015

Abstract

We study the speed of price reactions to positive and negative demand and cost shocks. Our findings suggest that price adjustment lags vary in line with the predictions of optimal price setting models. Moreover, we find that the firms' reactions are asymmetric, and that these asymmetries cannot be fully explained by any single theoretical model of asymmetric price adjustment. Overall, these results suggest that the reaction to monetary policy shocks may depend on which firms or sectors are particularly affected by them and, therefore, that richer models are needed to fully understand the effects of monetary policy.

Suggested Citation

Dias, Daniel A. and Robalo Marques, Carlos and Martins, Fernando and Santos Silva, João M.C, Understanding Price Stickiness: Firm‐Level Evidence on Price Adjustment Lags and Their Asymmetries (October 2015). Oxford Bulletin of Economics and Statistics, Vol. 77, Issue 5, pp. 701-718, 2015, Available at SSRN: https://ssrn.com/abstract=2656476 or http://dx.doi.org/10.1111/obes.12083

Daniel A. Dias (Contact Author)

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

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

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

Rua do Quelhas, 6
Lisboa, 1200
Portugal

Carlos Robalo Marques

Bank of Portugal - Economic Research Department ( email )

R. do Ouro, 27
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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