Sticky prices: why firms hesitate to adjust the price of their goods

Price stickiness—the tendency of prices to remain constant despite changes in supply and demand—has been linked to firms’ unwillingness to pay the costs entailed in setting, implementing, and advertising new prices. However, there is little consensus on the size and importance of these “repricing costs.” Taking the imported beer market as their subject, the authors of this study find repricing costs to be markedly higher for manufacturers than for retailers and conclude that, at the wholesale level, these costs are a significant deterrent to price adjustment.Prices ; Supply and demand ; Beer industry

The changing nature of the U.S. balance of payments

Earnings on cross-border investments figure only marginally in net estimates of the U.S. current account, but they represent an increasingly large share of gross flows between the United States and other nations. Because these earnings fluctuate much more sharply than trade flows, they can be expected to create permanently higher current account volatility. Such increased volatility is not necessarily grounds for concern, however; it reflects an international sharing of risk that provides a buffer against domestic economic uncertainty.Balance of payments ; International economic relations ; Investments, Foreign

How Rigid Are Producer Prices?

How rigid are producer prices? Conventional wisdom is that producer prices are more rigid than and so play less of an allocative role than do consumer prices. In the 1987-2008 micro data collected by the U.S. Bureau of Labor Statistics for the PPI, we find that producer prices for finished goods and services in fact exhibit roughly the same rigidity as do consumer prices that include sales, and substantially less rigidity than do consumer prices that exclude sales. Large firms change prices two to three times more frequently than do small firms, and by smaller amounts, particularly for price decreases. Longer price durations are associated with larger price changes, though there is considerable heterogeneity in this relationship. Long-term contracts are associated with somewhat greater price rigidity for goods and services, though the differences are not dramatic. The size of price decreases plays a key role in inflation dynamics, while the size of price increases does not. The frequencies of price increases and decreases tend to move together, and so cancel one another out.Producer prices, consmer prices, contracts

A Structural Approach to Identifying the Sources of Local-Currency Price Stability

The inertia of the local-currency prices of traded goods in the face of exchange-rate changes is a well-documented phenomenon in International Economics. This paper develops a structural model to identify the sources of this local-currency price stability and applies it to micro data from the beer market. The empirical procedure exploits manufacturers’ and retailers’ first-order conditions in conjunction with detailed information on the frequency of price adjustments following exchange-rate changes to quantify the relative importance of local non-traded cost components, markup adjustment by manufacturers and retailers, and nominal price rigidities in the incomplete transmission of such changes to prices. We find that, on average, approximately 60% of the incomplete exchange rate pass-through is due to local non-traded costs; 8% to markup adjustment; 30% to the existence of own-brand price adjustment costs, and 1% to the indirect/strategic effect of such costs, though these results vary considerably across individual brands according to their market shares.

A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application

The inertia of the local-currency prices of traded goods in the face of exchange-rate changes is a well-documented phenomenon in International Economics. This paper develops a framework for identifying the sources of local-currency price stability. The empirical approach exploits manufacturers’ and retailers’ first-order conditions in conjunction with detailed information on the frequency of price adjustments in response to exchange-rate changes, in order to quantify the relative importance of markup adjustment by manufacturers and retailers, local-cost non-traded components, and nominal price rigidities, in the incomplete transmission of exchange-rate changes to prices. The approach is applied to micro data from the beer market. We find that on average, 54.1% of the incomplete exchange rate pass-through is due to local non-traded costs; 33.7% to markup adjustment; and 12.2% to the existence of price adjustment costs.currency prices, exchange rates

Have U.S. import prices become less responsive to changes in the dollar?

The failure of the dollar's depreciation to narrow the U.S. trade deficit has driven recent research showing that the transmission of exchange rate changes to import prices has declined sharply in industrial countries. Estimates presented in this study, however, suggest that "pass-through" to U.S. import prices has fallen only modestly, if at all, in the last decade. The authors argue that methodological changes in the collection of import data and the inclusion of commodity prices in pass-through models may have contributed to earlier findings of low pass-through rates.Foreign exchange rates ; Imports - Prices

Who Bears the Cost of a Change in the Exchange Rate?

Nominal exchange rates are remarkably volatile. They ordinarily appear disconnected from the fundamentals of the economies whose currencies they price. These facts make up a classic puzzle about the international economy. If prices do not respond fully to changes in the nominal exchange rate, who bears the cost of such large and unpredictable changes: foreign firms, domestic firms, or domestic consumers? This study develops a structural approach to analyze the welfare effects of a change in the nominal exchange rate using the example of the beer market. I estimate a structural econometric model that makes it possible to compute manufacturers’ and retailers’ pass-through of a nominal exchange-rate change without observing wholesale prices or firms’ marginal costs. I conduct counterfactual experiments to quantify how the change affects domestic and foreign firms’ profits and domestic consumer welfare. The counterfactual experiments show that foreign manufacturers bear more of the cost of a change in the nominal exchange rate than do domestic consumers, domestic manufacturers, or the domestic retailer. Following a 10-percent domesticcurrency depreciation, foreign manufacturers’ profits decline by 22 percent, domestic consumer surplus falls by 8 percent, the retailer’s profits fall by 5 percent, and domestic manufacturers’ profits increase by 1.7 percent. The model can be applied to other industries and can serve as a tool to assess the welfare effects of various exchange-rate policiesexchange-rate pass-through: cross-border vertical contracts

A Decomposition of the Sources of Incomplete Cross-Border Transmission

cross-border transmission: international price discrimination

An ANGPTL4-ceramide-protein kinase Cζ axis mediates chronic glucocorticoid exposure-induced hepatic steatosis and hypertriglyceridemia in mice.

Chronic or excess glucocorticoid exposure causes lipid disorders such as hypertriglyceridemia and hepatic steatosis. Angptl4 (angiopoietin-like 4), a primary target gene of the glucocorticoid receptor in hepatocytes and adipocytes, is required for hypertriglyceridemia and hepatic steatosis induced by the synthetic glucocorticoid dexamethasone. Angptl4 has also been shown to be required for dexamethasone-induced hepatic ceramide production. Here, we further examined the role of ceramide-mediated signaling in hepatic dyslipidemia caused by chronic glucocorticoid exposure. Using a stable isotope-labeling technique, we found that dexamethasone treatment induced the rate of hepatic de novo lipogenesis and triglyceride synthesis. These dexamethasone responses were compromised in Angptl4-null mice (Angptl4-/-). Treating mice with myriocin, an inhibitor of the rate-controlling enzyme of de novo ceramide synthesis, serine palmitoyltransferase long-chain base subunit 1 (SPTLC1)/SPTLC2, decreased dexamethasone-induced plasma and liver triglyceride levels in WT but not Angptl4-/- mice. We noted similar results in mice infected with adeno-associated virus-expressing small hairpin RNAs targeting Sptlc2. Protein phosphatase 2 phosphatase activator (PP2A) and protein kinase Cζ (PKCζ) are two known downstream effectors of ceramides. We found here that mice treated with an inhibitor of PKCζ, 2-acetyl-1,3-cyclopentanedione (ACPD), had lower levels of dexamethasone-induced triglyceride accumulation in plasma and liver. However, small hairpin RNA-mediated targeting of the catalytic PP2A subunit (Ppp2ca) had no effect on dexamethasone responses on plasma and liver triglyceride levels. Overall, our results indicate that chronic dexamethasone treatment induces an ANGPTL4-ceramide-PKCζ axis that activates hepatic de novo lipogenesis and triglyceride synthesis, resulting in lipid disorders