Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152969
Authors: 
Fabiani, Silvia
Druant, Martine
Hernando, Ignacio
Kwapil, Claudia
Landau, Bettina
Loupias, Claire
Martins, Fernando
Mathä, Thomas Y.
Sabbatini, Roberto
Stahl, Harald
Stokman, Ad C.J.
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper 535
Abstract: 
This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, robust across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly time-dependent pricing rules while twothirds allow for elements of state-dependence. The majority of firms take into account past and expected economic developments in their pricing decisions. Price stickiness is mainly driven by customer relationships – explicit and implicit contracts – and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.
Subjects: 
Inflation persistence
nominal rigidity
price setting
real rigidity
survey data
JEL: 
E30
D40
Document Type: 
Working Paper

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