ARTICLE

ASYMMETRIES IN RESPONSE TO SHOCKS IN PRICE SETTING FIRMLEVEL EVIDENCE FROM SURVEY BASED DATA

  1. HOME
  2. ARTICLE

05 Pages : 45-54

http://dx.doi.org/10.31703/ger.2020(V-III).05      10.31703/ger.2020(V-III).05      Published : Sep 2020

Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data

Abstract

    The objective of the paper is to estimate the asymmetric response of firms for prices to supply and demand shocks. Firms give an asymmetric response to supply and demand shocks while setting at a price, and the prices are upward flexible and downward rigid to changes in the determinants. Asymmetric response to the cost of raw material is highest. Moreover, the seasonal factors have the lowest degree of asymmetric response. Firms give an asymmetric response to different shocks, with respect to a price increase and decrease, and across variables of demand-side and supply side. The central bank has to focus more on stabilization in response to supply shocks than to demand shocks because supply shocks are found more important than demand shocks to change the prices of firms. Measures should be taken to prevent the possible effects of adverse supply shocks.

    Supply and Demand Shocks, Asymmetric Response and Price Setting

    (1) Nadeem Iqbal
    Assistant Professor, Department of Economics, University of Peshawar, KP, Pakistan.
    (2) Amjad Amin
    Assistant Professor, Department of Economics, University of Peshawar, KP, Pakistan.
    (3) Danish Wadood Alam
    Lecturer, Department of Economics, University of Peshawar, KP, Pakistan.
Fulltext PDF

References

  • Barro, R. J. (1972). A theory of monopolistic price adjustment. The Review of Economic Studies, 39(1), 17-26.
  • Blaudow, C. & Burg, F. (2018).
  • Blinder, A. S. (1991). Why are prices sticky? Preliminary results from an interview study (No. w3646). National Bureau of Economic Research.
  • Blinder, A., Canetti, E. R., Lebow, D. E., & Rudd, J. B. (1998). Asking about prices: a new approach to understanding price stickiness. Russell Sage Foundation.
  • Borraz, F., Licandro, G., & Sola, D. (2020). Wage and price setting: new evidence from Uruguayan firms. Journal of Applied Economics, 23(1), 560-582.
  • Calvo, G. (1983). Staggered Prices in a Utility-Maximizing Framework. Journal of Monetary Economics, 12, 383-398.
  • Alberto, C. (2017).
  • Da Silva Correa, A., Petrassi, M. B. S., & Santos, R. (2016). Price-Setting Behavior in Brazil: survey evidence (No. 422).
  • Dhyne, E., Konieczny, J., Rumler, F., & Sevestre, P. (2009). Price rigidity in the euro area-An assessment (No. 380). Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Gorodnichenko, Y., Sheremirov, V., & Talavera, O. (2018a). Price setting in online markets: Does IT click? Journal of the European Economic Association, 16(6), 1764-1811.
  • Iqbal, N., & Amin, A. (2019). Some Preliminary Evidence of Price Setting Behaviour from the Industrial Estates of Khyber Pakhtunkhwa. Review of Economics and Development Studies, 5(4), 791-798.
  • Iregui-Bohórquez, A. M., Melo-Becerra, L. A., & Ramírez-Giraldo, M. T. (2011). Wage adjustment practices and the link between price and wages: survey evidence from colombian firms. Borradores de Economía; No. 660.
  • L'Huillier, J. P. (2020). Consumer Imperfect Information and Endogenous Price Rigidity. American Economic Journal: Macroeconomics, 12(2), 94-123.
  • Malik, W. S., Satti, A. U. H., & Saghir, G. (2008). Price setting behaviour of Pakistani firms: Evidence from four industrial cities of Punjab. The Pakistan Development Review, 247-266.
  • Mavroedis, S., Plagborg-Moller, M. & Stock, J. (2014), ‘Empirical evidence on inflation expectations in the new keynesian phillips curve', Journal of Economic Literature 52, 124-188.
  • McCallum, B. T., & Nelson, E. (1999)
  • Nakamura, E., & Steinsson, J. (2008). Five facts about prices: A reevaluation of menu cost models. The Quarterly Journal of Economics, 123(4), 1415-1464.
  • Pasten, E., Schoenle, R., & Weber, M. (2020). Price rigidity and the granular origins of aggregate fluctuations. Chicago Booth Research Paper, (17-25), 2018-54.
  • Peneva, E. (2009).
  • Singh, S., & Ru, C. G. (2019). Price rigidity, market competition, and product differentiation. Economic research-Ekonomska istraživanja, 32(1), 2941-2958.
  • Sohail, F., & Fatima, A. (2018). Price setting behaviour in Pakistan: stylized facts from micro-SPI data seta. Pakistan Journal of Applied Economics, 28(2), 253-286.
  • Taylor, J. (1980). Aggregate Dynamics and Staggered Contracts. Journal of Political Economy, 1-23.
  • Vermeulen, P., Dias, D., Dossche, M., Gautier, E., Hernando, I., Sabbatini, R., & Stahl, H. (2007). Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data, Working Paper Series, No 727, ECB.
  • Wang, O., & Werning, I. (2020). Dynamic Oligopoly and Price Stickiness. NBER Working Paper, (w27536).

Cite this article

APA

    APA : Iqbal, N., Amin, A., & Alam, D. W. (2020). Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data. Global Economics Review, V(III), 45-54. https://doi.org/10.31703/ger.2020(V-III).05

CHICAGO

    CHICAGO : Iqbal, Nadeem, Amjad Amin, and Danish Wadood Alam. 2020. "Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data." Global Economics Review, V (III): 45-54 doi: 10.31703/ger.2020(V-III).05

HARVARD

    HARVARD : IQBAL, N., AMIN, A. & ALAM, D. W. 2020. Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data. Global Economics Review, V, 45-54.

MHRA

    MHRA : Iqbal, Nadeem, Amjad Amin, and Danish Wadood Alam. 2020. "Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data." Global Economics Review, V: 45-54

MLA

    MLA : Iqbal, Nadeem, Amjad Amin, and Danish Wadood Alam. "Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data." Global Economics Review, V.III (2020): 45-54 Print.

OXFORD

    OXFORD : Iqbal, Nadeem, Amin, Amjad, and Alam, Danish Wadood (2020), "Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data", Global Economics Review, V (III), 45-54

TURABIAN

    TURABIAN : Iqbal, Nadeem, Amjad Amin, and Danish Wadood Alam. "Asymmetries in Response to Shocks in Price Setting: Firm-Level Evidence from Survey based Data." Global Economics Review V, no. III (2020): 45-54. https://doi.org/10.31703/ger.2020(V-III).05