Skip to main content

Advertisement

You are viewing the new article page. Let us know what you think. Return to old version

| Open | Published:

Price-setting behaviour in Switzerland: Evidence from CPI micro data

Summary

This paper investigates price-setting behaviour of firms based on the individual price quotes underlying the Swiss consumer price index. The data set covers the years from 1993 to 2005. Six main findings emerge from the analysis. (i) Prices are sticky; the median duration amounts to 4.6 quarters. (ii) Price-setting behaviour is heterogeneous across sectors and outlet characteristics. (iii) Price changes are sizeable; the median absolute size amounts to 9.4%. (iv) There is little evidence of downward price stickiness; almost half of all price changes are decreases. An exception is the service sector, however, where there is evidence of asymmetries in price-setting due to downward rigid wages. (v) Firms respond to expected cost shocks at the date of their occurrence; VAT rate changes do not lead to more price adjustments before they take effect. (vi) There is some evidence that firms adjust their behaviour according to the state of the economy; in particular, firms facing higher rates of inflation adjust prices more frequently.

References

  1. Altissimo, Filippo, Michael Ehrmann, and Frank Smets (2006), “Inflation Persistence and Price-Setting Behaviour in the Euro Area – A Summary of the IPN Evidence,” Occasional Paper Series 46, European Central Bank.

  2. Arellano, Manuel (1987), “Computing Robust Standard Errors for Within-Groups Estimators,” Oxford Bulletin of Economics and Statistics 49 (4), pp. 431–434.

  3. Bils, Mark, and Peter J. Klenow (2004), “Some Evidence on the Importance of Sticky Prices,” Journal of Political Economy 112 (5), pp. 947–985.

  4. Blinder, Alan S., Elie R. D. Canetti, David F. Lebow, and Jeremy B. Rudd (1998), Asking about Prices: A New Approach to Understanding Price Stickiness, Russel Sage Foundation, New York.

  5. Calvo, Guillermo A. (1983), “Staggered Prices in a Utility-Maximizing Framework,” Journal of Monetary Economics, 12 (3), pp. 383–398.

  6. Dhyne, Emmanuel, Luis J. Àlvarez, Hervé Le Bihan, Giovanni Veronese, Daniel A. Dias, Johannes Hoffmann, Nicole Jonker, Patrick Lünnemann, Fabio Rumler, and Jouko Vilmunen (2006), “Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data,” Journal of Economic Perspectives 20 (2), pp. 171–192.

  7. Dias, Daniel A., Carlos R. Marques, and Joao M. C. Santos Silva (2007), “Time- or State-Dependent Price Setting Rules? Evidence from Micro Data,” European Economic Review 51 (7), pp. 1589–1613.

  8. Dotsey, Michael, Robert G. King, and Alexander L. Wolman (1999), “State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output,” Quarterly Journal of Economics 114 (2), pp. 655–690.

  9. Fabiani, Silvia, Claudia Kwapil, Martine Druant, Ignacio Hernando, Bettina Landau, Claire Loupias, Fernando Martins, Thomas Y. Mathä, Roberto Sabbatini, Harald Stahl, and Ad Stokman (2005), “The Pricing Behaviour of Firms in the Euro Area – New Survey Evidence,” Working Paper Series 535, European Central Bank.

  10. Fehr, Ernst, and Lorenz Götte (2005), “Robustness and Real Consequences of Nominal Wage Rigidity,” Journal of Monetary Economics 52 (4), pp. 779–804.

  11. Fischer, Andreas, Matthias Lutz, and Manuel Wälti (2007), “Who Prices Locally? Survey Evidence of Swiss Exporters,” Working Paper 2007-16, Swiss National Bank.

  12. Fougère, Denis, Hervé Le Bihan, and Patrick Sevestre (2007), “Heterogeneity in Consumer Price Stickiness: A Microeconometric Investigation,” Journal of Business & Economic Statistics 25, pp. 247–264.

  13. FSO (1993), BFS aktuell – Der neue Landesindex der Konsumentenpreise: Mai 1993 = 100, Federal Statistical Office.

  14. — (2000), BFS aktuell – Der neue Landesindex der Konsumentenpreise: Mai 2000 = 100, Federal Statistical Office.

  15. — (2006), BFS aktuell – Der neue Landesindex der Konsumentenpreise: Dezember 2005 = 100, Federal Statistical Office.

  16. Gagnon, Etienne (2007), “Price Setting During Low and High Inflation: Evidence from Mexico,” International Finance Discussion Paper 896, Board of Governors of the Federal Reserve System.

  17. Götte, Lorenz, Rudolf Minsch, and Jean-Robert Tyran (2005), “Micro Evidence on the Adjustment of Sticky-Price Goods: It’s How Often, Not How Much,” Discussion Paper 5364, C.E.P.R.

  18. Klenow, Peter J., and Oleksiy Kryvtsov (2008), “State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?,” Quarterly Journal of Economics 123 (3), pp. 863–904.

  19. Nakamura, Emi, and Jón Steinsson (2008), “Five Facts About Prices: A Reevaluation of Menu Cost Models,” Quarterly Journal of Economics 123 (4), pp. 1415–1464.

  20. Rupprecht, Sarah M. (2007), “When Do Firms Adjust Prices? Evidence from Micro Panel Data,” Working Paper 160, KOF Swiss Economic Institute, ETH Zurich.

  21. Taylor, John B. (1980), “Aggregate Dynamics and Staggered Contracts,” The Journal of Political Economy 88 (1), pp. 1–23.

  22. Wooldridge, Jeffrey M. (2005), “Fixed-Effects and Related Estimators for Correlated Random-Coefficient and Treatment-Effect Panel Data Models,” The Review of Economics and Statistics 87 (2), pp. 385–390.

  23. Zurlinden, Mathias (2007), “The Pricing Behaviour of Swiss Companies: Results of a Survey Conducted by the SNB Delegates for Regional Economic Relations,” Quarterly Bulletin 2007-1, Swiss National Bank.

Download references

Author information

Correspondence to Daniel Kaufmann.

Additional information

The author would like to thank Marco Huwiler, Sarah Lein, Barbara Rudolf, Mathias Zurlinden, two anonymous referees, and participants of the YSEM meeting 2008 in Bern and of the SSES annual meeting 2008 in Lausanne for helpful discussions and comments. He would also like to thank the staff of the Prices Section at the Federal Statistical Office for valuable help with the data. All remaining errors are those of the author. The views expressed in this paper are those of the author and not necessarily those of the Swiss National Bank.

Rights and permissions

Reprints and Permissions

About this article

JEL-Classification

  • E31
  • D40

Keywords

  • CPI data
  • pricesetting
  • frequency of price changes
  • nominal price rigidity
  • time-dependent pricing
  • state-dependent pricing