Asymmetries in Price-Setting Behavior: New Microeconometric Evidence from Switzerland

Authors


  • This paper was prepared for the JMCB-SNB-UniBern Conference 2011 at the Study Center Gerzensee. We would like to thank our discussant, Raf Wouters, two anonymous referees and the conference participants for helpful discussions and suggestions. We are also grateful to Thomas Moser, Barbara Rudolf, and seminar participants at the SNB, the Bundesbank, the University of Heidelberg, the University of Bern, Ghent University, and the SSES annual meeting for their comments. Bo Honoré gratefully acknowledges financial support from the National Science Foundation. The views expressed in this paper are those of the authors and not necessarily those of the Swiss National Bank.

ABSTRACT

In this paper, we follow the recent empirical literature that has specified reduced-form models for price setting that are closely tied to (S, s)-pricing rules. Our contribution to the literature is twofold. First, we propose an estimator that relaxes distributional assumptions on the unobserved heterogeneity. Second, we use the estimator to examine the prevalence of positive price changes in a low-inflation environment. Our model estimates suggest that, if inflation falls from 0.9% to zero, the share of positive price changes in all price changes falls from 63.6% to 56.2%.

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