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Pricing Decisions in the Euro AreaHow Firms Set Prices and Why$
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Silvia Fabiani, Claire Suzanne Loupias, Fernando Manuel Monteiro Martins, and Roberto Sabbatini

Print publication date: 2007

Print ISBN-13: 9780195309287

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780195309287.001.0001

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Policy Lessons and Directions for Ongoing Research

Policy Lessons and Directions for Ongoing Research

Chapter:
(p.235) 15 Policy Lessons and Directions for Ongoing Research
Source:
Pricing Decisions in the Euro Area
Author(s):

Vítor Gaspar

Andrew Levin

Fernando Martins

Frank Smets

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195309287.003.0016

Understanding the features and the determinants of individual price setting behavior is important for the formulation of monetary policy. These behavioral mechanisms play a fundamental role in influencing the characteristics of aggregate inflation and in determining how monetary policy affects inflation and real economic activity. The Inflation Persistence Network analyzed a large number of panel data sets of individual price records and conducted surveys of price-setting managers in many euro area countries. This chapter discusses to what extent the evidence coming from those two data sources provides support for some basic elements of the New Keynesian perspective. It analyses the implications of the micro evidence for distinguishing between competing theories of price stickiness and provides some brief reflections about the lessons for monetary policy.

Keywords:   Price setting, price stickiness, monetary policy, inflation, New Keynesian models

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