The Determinants of Sticky Prices and Sticky Plans: Evidence from German Business Survey Data

Abstract

Abstract So far, there is no consensus on the price adjustment determinants in the empirical literature. Analyzing a novel firm-level business survey data set, we provide new insights on the price setting behavior of German retailers during a low inflation period. Relating the probability of both price and pricing plan adjustment to time- and state-dependent variables, we find that state-dependence is important; the macroeconomic environment as well as the firm-specific condition significantly determines the timing of both actual price changes and pricing plan adjustments. Moreover, input cost changes are important determinants of price setting. Finally, price increases respond more strongly to cost shocks compared to price decreases.