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Time or state dependent price setting rules? Evidence from Portuguese micro data

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  • Robalo Marques, Carlos
  • Dias, Daniel
  • Santos Silva, João M. C.

Abstract

In this paper we analyse the ability of time and state dependent price setting rules to explain durations of price spells or the probability of changing prices. Our results suggest that simple time dependent models cannot be seen as providing a reasonable approximation to the data and that state dependent models are required to fully characterise the price setting behaviour of Portuguese firms. Inflation, the level of economic activity and the magnitude of the last price change emerge as relevant variables affecting the probability of changing prices. Moreover, it is seen that the impact differs for negative and positive values of these covariates. JEL Classification: C41, D40, E31

Suggested Citation

  • Robalo Marques, Carlos & Dias, Daniel & Santos Silva, João M. C., 2005. "Time or state dependent price setting rules? Evidence from Portuguese micro data," Working Paper Series 511, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005511
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    References listed on IDEAS

    as
    1. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 655-690.
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    6. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    7. Portugal, Pedro & Addison, John T., 2000. "Short- and long-term unemployment," Economics Letters, Elsevier, vol. 66(1), pages 107-112, January.
    8. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    CPI data; hazard functions; inflation;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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