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Wage and price setting: new evidence from Uruguayan firms

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  • Fernando Borraz
  • Gerardo Licandro
  • Daniela Sola

Abstract

This paper presents new evidence on wage and price setting based on a survey of more than 300 Uruguayan firms in 2013. Most of the firms set prices considering costs and adding a profit margin; therefore, they have some degree of market power. The evidence indicates that price increases appear quite flexible in Uruguay (prices are downward rigid). Most of the firms adjust their prices without following a regular frequency which suggests that price changes in Uruguay are state-dependent, although wage changes are concentrated in January and July. Interestingly, the cost of credit is seen by companies as an irrelevant factor in explaining price increases. We also find that cost reduction is the principal strategy to a negative demand shock. Finally, the adjustment of prices to changes in wages is relatively fast.

Suggested Citation

  • Fernando Borraz & Gerardo Licandro & Daniela Sola, 2017. "Wage and price setting: new evidence from Uruguayan firms," BIS Working Papers 605, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:605
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    References listed on IDEAS

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    1. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
    2. Ana Iregui & Ligia Melo & María Ramírez, 2012. "Wage Adjustment Practices and the Link between Price and Wages: Survey Evidence from Colombian Firms," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 76, pages 17-53.
    3. Fernando Martins & M. Druant, 2009. "How are Firms’ Wages and Prices Linked: Survey Evidence in Europe," Working Papers w200918, Banco de Portugal, Economics and Research Department.
    4. Fernando Borraz & Leandro Zipitría, 2012. "Retail Price Setting in Uruguay," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 77-109, January.
    5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    6. Jan Babecky & Kamil Dybczak & Kamil Galuscak, 2008. "Survey on Wage and Price Formation of Czech Firms," Working Papers 2008/12, Czech National Bank.
    7. Martins, Fernando, 2005. "The price setting behaviour of Portuguese firms: evidence from survey data," Working Paper Series 562, European Central Bank.
    8. Arnildo da Silva Correa & Myrian Beatriz S. Petrassi & Rafael Santos, 2016. "Price-Setting Behavior in Brazil: survey evidence," Working Papers Series 422, Central Bank of Brazil, Research Department.
    9. Lee J. Alston & Marcus André Melo & Bernardo Mueller & Carlos Pereira, 2016. "Introduction," Introductory Chapters, in: Brazil in Transition: Beliefs, Leadership, and Institutional Change, Princeton University Press.
    10. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 313-338, April.
    11. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Discussion Paper Series 1: Economic Studies 2005,43, Deutsche Bundesbank.
    12. Robalo Marques, Carlos & Martins, Fernando & Portugal, Pedro, 2010. "Price and wage formation in Portugal," Working Paper Series 1225, European Central Bank.
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    Cited by:

    1. Serafín Frache & Rodrigo Lluberas, 2017. "New information and inflation expectations among firms," Documentos de trabajo 2017013, Banco Central del Uruguay.

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    More about this item

    Keywords

    price setting; labor market; survey evidence; Uruguay;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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