Pricing Decisions in the Euro AreaHow Firms Set Prices and Why

Pricing Decisions in the Euro AreaHow Firms Set Prices and Why

Silvia Fabiani, Claire Suzanne Loupias, Fernando Manuel Monteiro Martins, and Roberto Sabbatini

Print publication date: 2007

ISBN: 9780195309287

Publisher: Oxford University Press


Theoretical research undertaken over the last decades showed that the nature of nominal rigidities plays a key role in determining the effects of different shocks on the economy. This research has made clear that a thorough understanding of the extent and causes of the sluggish adjustment of nominal prices is crucial to the design and conduct of monetary policy. This book presents the main results of a research program undertaken by the Eurosystem central banks on price setting decisions by firms in the euro area. Its objective is to deepen our understanding of the behavioral mechanisms driving agents' pricing decisions, adopting a methodological approach—asking firms directly about how they set the price of their output (their pricing strategies) and why (the rationale of these strategies)—that is particularly well suited for the purpose at hand. The book also compares results for the euro area to similar analyses for other countries and summarizes the main findings of studies based on individual quantitative micro data on consumer and producer prices carried out for most euro area countries. Finally, the book explores the monetary policy implications of the main findings.

Table of Contents


Silvia Fabiani, Claire Loupias, Fernando Martins, and Roberto Sabbatini

Part I Firms' Pricing Behavior in the Euro Area: An Overview

1 The Use of Survey Data to Investigate Price Setting

Stephen G. Cecchetti, Fernando Martins, Roberto Sabbatini, and Harald Stahl

2 Summary of Results for the Euro Area

Silvia Fabiani, Claire Loupias, Martine Druant, Ignacio Hernando, Claudia Kwapil, Bettina Landau, Fernando Martins, Thomas Mathä, Sabbatini Roberto, Harald Stahl, and Ad Stokman

Part II Country-Specific Findings

3 Price Reactions to Demand and Cost Shocks

Claudia Kwapil, Josef Baumgartner, and Johann Scharler

4 Why Are Prices Sticky?

Luc Aucremanne, and Martine Druant

5 Asymmetries in Price Setting

Claire Loupias, and Roland Ricart

7 The Pricing Behavior of Italian Firms

Silvia Fabiani, Angela Gattulli, and Roberto Sabbatini

8 A Survey of Price Setting Practices of Luxembourg Firms

Patrick Lünnemann, and Thomas Mathä

9 The Pricing Behavior of Dutch Firms

Marco Hoeberichts, and Ad Stokman

11 The Pricing Behavior of Spanish Firms

Luis J. Álvarez, and Ignacio Hernando

Part III Comparative Analysis

12 A Comparison Based on International Survey Evidence

Patrick Lünnemann, and Thomas Mathä

13 Competition and Price Adjustment in the Euro Area

Luis J. Álvarez, and Ignacio Hernando

14 What Quantitative Micro Data Reveal about Price Setting Behavior

Roberto Sabbatini, Luis J. Álvarez, Emmanuel Dhyne, Marco Hoeberichts, Hervé Le Bihan, Patrick Lünnemann, Fernando Martins, Fabio Rumler, Harald Stahl, Philip Vermeulen, Giovanni Veronese, and Jouko Vilmunen

Part IV Concluding Remarks and Implications

15 Policy Lessons and Directions for Ongoing Research

Vítor Gaspar, Andrew Levin, Fernando Martins, and Frank Smets