How are prices adjusted in response to shocks? Survey evidence from Austrian firms

✍ Scribed by Claudia Kwapil; Johann Scharler; Josef Baumgartner

• Publisher: John Wiley and Sons
• Year: 2010
• Tongue: English
• Weight: 151 KB
• Volume: 31
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/mde.1482

✦ Synopsis

Abstract

In this paper we investigate the response of prices to shocks based on a survey of Austrian firms. We find that firms are more likely to change prices after a cost shock than after a demand shock. In this vein, our analysis suggests that regular customers are an important explanation for price rigidity after demand shocks. Furthermore, lacking competition is another significant explanation for price stickiness. Finally, we find asymmetric responses after cost and demand shocks. Prices appear to be more rigid downward than upward after cost shocks, while they are more rigid upward than downward in reaction to shifts in demand. Copyright © 2009 John Wiley & Sons, Ltd.