Friday, April 15, 2011
Posted by D. Daniel Sokol
Daniel A. Dias (Department of Economics, University of Illinois), Carlos Robalo Marques (Banco de Portugal, Research Department), Fernando Martins (Banco de Portugal, Research Department, ISEG (Technical University of Lisbon) and Universidade Lusíada de Lisboa) and Joao M.C. Santos Silva (Department of Economics, University of Essex and CEMAPRE) ask Why are some prices stickier than others? Firm-data evidence on price adjustment lags.
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.