Pricing Decisions in the Euro Area: How Firms Set Prices and Why

Silvia Fabiani · Claire Suzanne Loupias · Fernando Manuel Monteiro Martins · Roberto Sabbatini

qer 2007 · Oxford University Press

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This book collects results from ad hoc surveys on firms pricing behavior conducted in 2003 and 2004 by nine National central banks of the Euro area in the context of a joint research project (Eurosystem Inflation Persistence Network). These surveys have proved to be an efficient way to test theories on the pricing strategies of economic agents, documenting, in qualitative terms, the underlying rationale of the observed pricing patterns. The book provides an unprecedented amount of information from more than 11,000 euro area firms, addressing issues such as the relevance of nominal and real rigidities, the information set used by firms in the price setting process, the strategy followed to review prices, the frequency of both price reviews and price changes, the reasons underlying price stickiness, and asymmetries in price adjustment. It also compares results for the euro area to those obtained for other countries by similar studies. Finally, it draws the main implications for theoretical modeling and for monetary policy.

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Silvia Fabiani is a senior economist at the Research Department of Banca d'Italia. Her recent research involves monitoring and forecasting the short-term developments of inflation in Italy and the euro area, styding long-term price dynamics and its determinants, and analyzing structural issues concerning price setting across countries and sectors. Claire Loupias was a senior economist at teh Research Department of Banque de France while writing this book. She is now Assistant Professor at EPEE, Universite d'Evry (France). Her recent research involves the analysis of price setting. She has worked in various fields such as the monetary transmission mechanism and population aging. Fernando Martins is a senior economist at the Research Department of the Banco de Portugal. The implementation of monetary policy under uncertainty and the analysis of price stickiness based on survey data are his most recent topics of research. He is also Professor of Statistics and Data Analysis at the Universidade Lusiada of Lisbon. Roberto Sabbatini is a senior economist at the Research Department of Banca d'Italia. His recent research involves the short-term analysis of the Italian economy and that of the euro area, including forecasting, the analysis of the inflationary process and its determinants, and the impact of the euro cash changeover on consumer prices in Italy as well as in the euro area.