Pricing-to-Market (PTM) and the International Monetary Policy Transmission: The "New Open-Economy Macroeconomics" Approach

Empirical analyses of firms' Price-setting behavior show that while the exchange rate pass-through of Japanese firms is low (many Japanese firms adopt pricing-to-market [PTM]), the export prices charged by U.S. firms nearly perfectly reflect foreign exchange rate fluctuations. This paper analyzes how the difference in domestic and foreign firms' price-setting behavior affects the domestic and international transmission of monetary policy by using a model that explicitly incorporates differences in the price-setting behavior of domestic and foreign firms. This model is constructed by adopting the framework of the "hew open-economy macroeconomics" that has been the subject of numerous research papers an recent years. The findings demonstrate that the effects of domestic and foreign monetary policies differ greatly when domestic and foreign firms adopt different price-setting behaviors. This indicates that central banks have to give sufficient attention to firms' price-setting behavior for the implementation of monetary policies. Additionally, model simulations based on Japan and U.S. data show that the external effect of Japanese monetary policy is negligible compared with that of U. S. monetary policy due to the PTM-price-setting behavior of Japanese firms.

Price-setting behavior in the presence of social interactions

We argue in this paper that a more active market for corporate control may weaken the takeover threat. We show that an increase in the number of potential raiders tends to decrease the probability of a takeover. This in turn weakens managerial incentives. The lower managerial effort level that results in equilibrium negatively affects the ex ante value of the firm.

The price-setting behavior of Austrian firms: some survey evidence

This paper explores the price-setting behavior of Austrian firms based on survey evidence. Our main result is that customer relationships are a major source of price stickiness in the Austrian economy. We also find that the majority of firms in our sample follows a timedependent pricing strategy. However, a substantial fraction of firms deviates from time-dependent pricing in the case of large shocks and switches to a state-dependent pricing strategy. In addition, we present evidence suggesting that the price response to various shocks is subject to asymmetries. JEL Classification: C25, E30price rigidity, price-setting behavior

Price Setting Behavior in Turkish Industries: Evidence From Survey Data

This study investigates the price setting behavior of Turkish industries based on the results of a survey that was conducted by the Central Bank of the Republic of Turkey. The results show that under normal conditions, the majority of the firms follow time-dependent pricing rule but when significant events occur substantial fraction of them alter their behavior to state dependent reviewing. The median Turkish firm reviews its prices every month, but changes its prices four times a year. Price reviews and changes are affected by: the market share, price discrimination, customer type, firm size and the existence of regulated prices.price-setting, price-rigidity, survey

Price setting in France: new evidence from survey data

This paper reports the results of a survey conducted by the Banque de France during Winter 2003-2004 to investigate the price-setting behavior of French manufacturing companies. Prices are found to adjust infrequently; the median firm modifies its price only once a year. Price reviews are more frequent than price changes; the median firm reviews its price quarterly. Firms are found to follow either time dependent, state-dependent or both pricing rules. Moreover, the chosen interval of price reviews depends on the probability that changes in the firms’ environment occur. Coordination failure and nominal contracts (either written or implicit) are the most important sources of price stickiness, while pricing thresholds and physical menu costs appear to be totally unimportant. Asymmetries in price stickiness are found to be different for cost shocks compared to demand shocks: prices are more rigid downward than upward for cost shocks, while the reverse is true for demand shocks. JEL Classification: E31, D40, L11Inflation persistence, price rigidity, price-setting behavior, survey data

Price-setting behavior in the presence of social interactions

We argue in this paper that a more active market for corporate control may weaken the takeover threat. We show that an increase in the number of potential raiders tends to decrease the probability of a takeover. This in turn weakens managerial incentives. The lower managerial effort level that results in equilibrium negatively affects the ex ante value of the firm.

Monetary policy shocks, inventory dynamics, and price-setting behavior

In this paper, we estimate a VAR model to present an empirical finding that an unexpected rise in the federal funds rate decreases the ratio of sales to stocks available for sales, while it increases finished goods inventories. In addition, dynamic responses of these variables reach their peaks several quarters after a monetary shock. In order to understand the observed relationship between monetary policy and finished goods inventories, we allow for the accumulation of finished goods inventories in an optimizing sticky price model, where prices are set in a staggered fashion. In our model, holding finished inventories helps firms to generate more sales at given their prices. We then show that the model can generate the observed relationship between monetary shocks and finished goods inventories. Furthermore, we find that allowing for inventory holdings leads to a Phillips curve equation, which makes the inflation rate depend on the expected present-value of future marginal cost as well as the current periodicals marginal cost and the expected rate of future inflation.Business cycles ; Monetary policy ; Phillips curve

Staggering and Synchronization in Price-Setting: Evidence from Multipro-duct Firms

Most of the theoretical literature on price-setting behavior deals with the special case in which only a single price is changed. At the retail-store level, at least, where dozens of products are sold by a single price-setter, price-setting policies are not formulated for individual products. This feature of economic behavior raises a host of questions whose answers carry interesting implications. Are price setters staggered in the timing of price changes? Are price changes of different products synchronized within the store? If so, is this a result of aggregate shocks or of the presence of a store- specific component in the cost of adjusting prices? Can observed small changes in prices be rationalized by a menu cost model? We exploit the multiproduct dimension of the dataset on prices used in Lach and Tsiddon (1992a) to explore several of these and other issues. To the best of our knowledge this is the first empirical work on this subject.

Inflationary Expectations and Price Setting Behavior

This paper tests for the existence of expectational effects in very disaggregate price equations. Price equations are estimated using monthly data for each of 40 products. The dynamic specification of the equations is also tested, including whether the equations should be specified in level form or in change form. Two expectational hypotheses are used, one in which expectations of the aggregate price level and one in which expectations are rational. Under the first hypothesis the lag length is estimated along with the other parameters, and under the second hypothesis the lead length is estimated along with the other parameters. The results strongly support the hypothesis that aggregate price expectations affect individual pricing decisions. The results do not discriminate very well between the level and change forms of the price equation, although there is a slight edge for the level form. The lag and lead lengths are not estimated precisely, but in most cases the lag length is less than 30 months and the lead length is less than 5 months

A note on measuring the importance of the uniform nonsynchronization hypothesis

In this note we reappraise the measure of the importance of time-dependent price setting rules suggested by Klenow and Kryvtsov (2005, "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Bank of Canada Working Paper 05-4). Furthermore, we propose an alternative way to gauge the significance of this type of price setting behavior, which can be interpreted as an upper bound for the proportion of price trajectories which are compatible with the uniform nonsynchronization hypothesis. The merits of the proposed measure are highlighted in an application using micro-data. Our results suggest that a large proportion of price trajectories may be compatible with simple time-dependent price setting mechanisms, but the strength of this evidence very much depends on the way that is used to evaluate the importance of this type of behavior.perfect synchronization.