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Price Setting of Firms under Cost Uncertainty

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  • MORIKAWA Masayuki

Abstract

This study documents firms’ input and output price uncertainty over the past 20 years, using made-to-order aggregate data from the Short-Term Economic Survey of Enterprises in Japan (Tankan Survey). The results show that input and output price uncertainty increased markedly in the second half of 2008 when the Global Financial Crisis hit the economy, but subsequently, price uncertainty remained low, even during the COVID-19 pandemic. Output price uncertainty is strongly associated with input price uncertainty, and this relationship is more pronounced than its relationship with demand uncertainty. Input price uncertainty suppresses firms’ output prices, suggesting that uncertainty weakens price pass-through.

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  • MORIKAWA Masayuki, 2023. "Price Setting of Firms under Cost Uncertainty," Discussion papers 23040, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:23040
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