The price setting behaviour of Spanish firms: evidence from survey data

This paper reports the results of a survey carried out by the Banco de España on a sample of around 2000 spanish firms to deepen the understanding of firms’ price setting behaviour. The main findings may be summarised as follows. Most Spanish firms are price setters that use predominantly state-dependent rules or a combination of time- and statedependent rules when reviewing their prices. Changes in costs are the main factor underlying price increases, whereas changes in market conditions (demand and competitors’ prices) are the main driving forces of price decreases. The degree of price flexibility is directly related to the share of energy inputs over total costs and to the intensity of competition, whereas it is inversely linked to the labour share. The three theories of price stickiness that receive the highest empirical support are implicit contracts, coordination failure and explicit contracts. JEL Classification: D40, E31price setting, Price stickiness, survey data

M&AS performance in the European financial industry

This paper looks at the performance record of M&As that took place in the European Union financial industry in the period 1998-2002. First, the paper reports evidence on shareholder returns from mergers. Merger announcements brought positive excess returns to the shareholders of the target company around the date of the announcement, with a slight positive excess return in the 3-month period prior to announcement. Returns to shareholders of the acquiring firms were essentially zero around announcement. One year after the announcement, excess returns were not significantly different from zero for either targets or acquirers. The paper also provides evidence on changes in operating performance for the subsample of mergers involving banks. M&As usually involved targets with lower-than-average operating performance for their sector. The transactions resulted in significant improvements in the target banks' performance, beginning on average two years after the transaction was completed. Return on equity of the target companies increased by an average of 7%, and the same firms also experienced efficiency improvements.mergers and acquisitions; financial industry;

Price setting behaviour in Spain: stylised facts using consumer price micro data

This paper identifies the basic features of the price setting mechanism in the Spanish economy, using a large dataset that contains over 1.1 million price records and covers around 70% of the expenditure on the CPI basket. In particular, the paper identifies differences in the frequency and size of price adjustments across types of products and explores how these general features are affected by certain specific factors: seasonality, the level of inflation, changes in indirect taxation and the practice of using psychological and round prices. We find that prices do not change often but do so by a large amount, although there is a marked heterogeneity across products. Moreover, the high frequency of price reductions suggests that there is no strong downward rigidity. Our evidence also supports the use of time and state-dependent pricing strategies. JEL Classification: E31, D40, C25consumer prices, frequency of price changes, price setting

Macroeconomic Effects of Structural Fiscal Policy Changes in Colombia

In the past decade the Colombian Economic Authorities undertook a series of measures that reduced the structural fiscal deficit, decreased the Government currency mismatch and deepened the local fixed-rate public bond market. This paper presents some evidence suggesting that these improvements had important effects on the behavior of the macroeconomy. They seem to have permanently reduced the sovereign risk premium, increased the reaction of output to Government expenditure shocks and strengthened the response of market interest rates to monetary policy shocks.Fiscal Policy, Macroeconomy, Monetary Policy and Real Interest.

Do decreasing hazard functions for price changes make any sense?

A common finding in empirical studies using micro data on consumer and producer prices is that hazard functions for price changes are decreasing. This means that a firm will have a lower probability of changing its price the longer it has kept it unchanged. This result is at odds with standard models of price setting. Here a simple explanation is proposed: decreasing hazards may result from aggregating heterogeneous price setters. We show analytically the form of this heterogeneity effect for the most commonly used pricing rules and find that the aggregate hazard is (nearly always decreasing. Results are illustrated using Spanish producer and consumer price data. We find that a very accurate representation of individual data is obtained by considering just 4 groups of agents: one group of flexible Calvo agents, one group of intermediate Calvo agents and one group of sticky Calvo agents plus an annual Calvo process. JEL Classification: C40, D40, E30hazard function, Heterogeneous Agents, mixture models, price setting models

Price setting behaviour in Spain: evidence from micro PPI data

This paper identifies the basic features of price setting behaviour at the producer level in the Spanish economy using a large dataset containing the micro data underlying the construction of the PPI over the period 1991-1999. It explores how these general features are affected by some specific factors (cost structure, degree of competition, demand conditions, government intervention, level of inflation, seasonality, and the practice of using attractive prices) and presents a comparison of price setting practices at the producer and at the consumer level to ascertain whether the retail sector augments or mitigates price stickiness. We find that prices do not change often but do so by a large amount. The cost structure, proxied by the labour share and the relevance of raw materials, and the degree of competition, proxied by import penetration, affect price flexibility. We also find some evidence that producer prices are more flexible than consumer prices. JEL Classification: E31, D40frequency of price changes, price setting, producer prices

Explaining cross-industry heterogeneity in price stickiness.

This note explains cross industry heterogeneity in the frequency of price adjustment. We use the quasi-maximum approach of Papke and Wooldridge (1996) to avoid the shortcomings of OLS regressions to analyse frequencies. We pay particular attention to the role of costs and market competition in explaining cross-industry differences. We find that prices are stickier the higher the labour cost share and the lower are competition and the intermediate input share.producer prices, frequency of price changes, market competition, cost structure