Working Paper: CEPR ID: DP5364
Authors: Lorenz Götte; Rudolf Münsch; Jean-Robert Tyran
Abstract: 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.
Keywords: inflation; nominal inertia; sticky prices
JEL Codes: B49; D21; E30; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation rates (E31) | timing of price adjustments (L11) |
| inflation rates (E31) | hazard of price changes (E30) |
| hazard of price changes (E30) | frequency of price adjustments (E30) |
| inflation rates (E31) | size of price changes (E30) |
| price erosion (D40) | inflation rates (E31) |