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Firms' Price-setting Behaviour: Insights from Earnings Calls

Author

Listed:
  • Callan Windsor

    (Reserve Bank of Australia)

  • Max Zang

    (Reserve Bank of Australia)

Abstract

We introduce new firm-level indices covering input costs, demand and final prices based on listed Australian firms' earnings calls going back to 2007. These indices are constructed using a powerful transformer-based large language model. We show the new indices track current economic conditions, consistent with a simple conceptual framework we use to explain why there is real-time information in firms' earnings calls. Focusing on firms' price-setting behaviour, the reduced-form associations we estimate appear to show that discussions around final prices have become more sensitive to import costs but less sensitive to labour costs in the period since 2021. This is after controlling for changes in the operating environment that are common to all firms, including global supply shocks. Firms' price-setting sentiment also appears more sensitive to rising input costs compared to falling costs, suggesting that prices could remain front-of-mind for company executives even as supply pressures ease.

Suggested Citation

  • Callan Windsor & Max Zang, 2023. "Firms' Price-setting Behaviour: Insights from Earnings Calls," RBA Research Discussion Papers rdp2023-06, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2023-06
    DOI: 10.47688/rdp2023-06
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    References listed on IDEAS

    as
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    5. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2019. "International Shocks, Variable Markups, and Domestic Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(6), pages 2356-2402.
    6. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
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    More about this item

    Keywords

    price setting; inflation; machine learning; natural language processing; earnings calls;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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