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Price-setting behaviour in Switzerland: Evidence from CPI micro data

Summary

This paper investigates price-setting behaviour of firms based on the individual price quotes underlying the Swiss consumer price index. The data set covers the years from 1993 to 2005. Six main findings emerge from the analysis. (i) Prices are sticky; the median duration amounts to 4.6 quarters. (ii) Price-setting behaviour is heterogeneous across sectors and outlet characteristics. (iii) Price changes are sizeable; the median absolute size amounts to 9.4%. (iv) There is little evidence of downward price stickiness; almost half of all price changes are decreases. An exception is the service sector, however, where there is evidence of asymmetries in price-setting due to downward rigid wages. (v) Firms respond to expected cost shocks at the date of their occurrence; VAT rate changes do not lead to more price adjustments before they take effect. (vi) There is some evidence that firms adjust their behaviour according to the state of the economy; in particular, firms facing higher rates of inflation adjust prices more frequently.

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Correspondence to Daniel Kaufmann.

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The author would like to thank Marco Huwiler, Sarah Lein, Barbara Rudolf, Mathias Zurlinden, two anonymous referees, and participants of the YSEM meeting 2008 in Bern and of the SSES annual meeting 2008 in Lausanne for helpful discussions and comments. He would also like to thank the staff of the Prices Section at the Federal Statistical Office for valuable help with the data. All remaining errors are those of the author. The views expressed in this paper are those of the author and not necessarily those of the Swiss National Bank.

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Kaufmann, D. Price-setting behaviour in Switzerland: Evidence from CPI micro data. Swiss J Economics Statistics 145, 293–349 (2009). https://doi.org/10.1007/BF03399283

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