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Understanding Price Stickiness: Firm‐level Evidence on Price Adjustment Lags and Their Asymmetries
Author(s) -
Dias Daniel A.,
Marques Carlos Robalo,
Martins Fernando,
Santos Silva J. M. C.
Publication year - 2015
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12083
Subject(s) - economics , price setting , price level , monetary economics , monetary policy , econometrics , microeconomics
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.