DP5364 Micro Evidence on the Adjustment of Sticky-Price Goods: It's How Often, Not How Much

Author(s): Lorenz Götte , Rudolf Minsch , Jean-Robert Tyran

Publication Date: December 2005

Keyword(s): sticky prices , inflation , nominal inertia

JEL(s): B49 , D21 , E30 , E31

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP5364.asp

We use a unique panel data set to analyse price setting in restaurants in Switzerland 1977-93, for items known to have sticky prices. The macroeconomic environment during this time period allows us to examine how firms adjust prices at low (0%) and fairly high (7%) inflation. Our results indicate that firms strongly react to inflation in the timing of their price adjustment: hazard of price changes is increasing with time and becomes steeper at higher inflation rates. However, we find little evidence that the amount by which they change the price responds to the inflation rate.