Publication detail

Price setting Behavior: Micro Evidence on Slovakia

Author(s): prof. Roman Horváth Ph.D., Fabrizio Coricelli
Type: Others
Year: 2006
Number: 0
Published in: CEPR Discussion Papers, No. 5445
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Abstract: The paper provides an empirical analysis of price setting behavior in Slovakia, using large micro-level dataset covering about 57% of Slovakian CPI for the period 1997-2001. The novelty of the paper is the analysis of a country characterized by nearly double-digit inflation and undergoing massive changes in market structure during the process of transition and accession to the EU. Several empirical findings stand out. Similarly to results on advanced market economies, we find that price changes are infrequent and sizeable. Moreover, the relationship between frequency and size of price changes is highly non-linear. Product-specific inflation is typically highly persistent. We find that market structure is important determinant of pricing behavior. The dispersion of prices is higher while persistence is lower in the non-tradable sectors, suggesting that higher competition in goods markets is not conducive to lower persistence. An important implication is that increasing market competition brought about by entry in the EU will not necessarily lead to lower persistence. This result, together with the finding that the frequency of price changes depends negatively on the price dispersion and positively on the individual inflation, seems consistent with predictions of the staggered price model of Calvo.
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