Asymmetries in Price-Setting Behavior: New Microeconometric Evidence from Switzerland

In this paper, we follow the recent empirical literature that has specified reduced-form models for price setting that are closely tied to (S, s)-pricing rules. Our contribution to the literature is twofold. First, we propose an estimator that relaxes distributional assumptions on the unobserved het...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2012-12, Vol.44 (s2), p.211-236
Main Authors: HONORÉ, BO E., KAUFMANN, DANIEL, LEIN, SARAH
Format: Article
Language:English
Subjects:
asymmetric price adjustment
Asymmetry
Bank credit
Banking
C23
Coefficients
Consumer Price Index
CPI microdata
Credit
E31
Estimation
Estimators
front loading
heterogeneity
Inflation
Inflation rates
L11
Menu costs
Microeconomics
panel data
Price changes
Price competition
Price increases
Price level changes
Switzerland
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Summary:In this paper, we follow the recent empirical literature that has specified reduced-form models for price setting that are closely tied to (S, s)-pricing rules. Our contribution to the literature is twofold. First, we propose an estimator that relaxes distributional assumptions on the unobserved heterogeneity. Second, we use the estimator to examine the prevalence of positive price changes in a low-inflation environment. Our model estimates suggest that, if inflation falls from 0.9% to zero, the share of positive price changes in all price changes falls from 63.6% to 56.2%.
ISSN:0022-2879
1538-4616
DOI:10.1111/j.1538-4616.2012.00558.x