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Identifying Price Reviews by Firms: An Econometric Approach
Author(s) -
HARRIS MARK N.,
LE BIHAN HERVÉ,
SEVESTRE PATRICK
Publication year - 2019
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12675
Subject(s) - economics , probit model , price setting , point (geometry) , probit , econometrics , relevance (law) , price level , factor price , ordered probit , mid price , monetary economics , microeconomics , geometry , mathematics , political science , law
Price reviews are a potentially costly activity. A significant fraction of unchanged prices may stem from firms not reviewing prices, rather than from obstacles to changing prices per se , such as menu costs. In this paper, we disentangle these two causes of price stickiness by estimating an inflated ordered probit model on a panel of French manufacturing firms. The results point to a low frequency of price reviews, suggestive of the relevance of information costs as a determinant of the observed price stickiness. In view of the “inattentive producers” literature, pointing that the source of price rigidity matters, this is suggestive of a large real effect of monetary policy.