Working Paper: NBER ID: w3646
Authors: Alan S. Blinder
Abstract: This paper reports preliminary results from a large research project on business pricing which is currently underway. The idea is to use interviews with actual price setters to assess the validity of a dozen theories of price stickiness. The rather unorthodox (for economists) methodology is defended; the research design is described briefly; and a few results based on the first 72 interviews (out of a projected 200) are presented. This sample suggests that the median firm changes its price annually and that price adjustments typically lag 3-4 months behind shocks to demand or cost.
Keywords: price stickiness; Keynesian economics; interview study
JEL Codes: E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price setters' beliefs and reasoning processes (L11) | pricing decisions (L11) |
| pricing decisions (L11) | observed stickiness of prices (C54) |
| shocks to demand or cost (E39) | delayed adjustments in pricing behavior (D40) |
| price setters acknowledging theories as relevant (D46) | accurate description of decision-making processes (D91) |
| theoretical frameworks inadequately capturing complexities (B52) | misinterpretations of price stickiness (E31) |