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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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Price Reactions to Demand and Cost Shocks

Price Reactions to Demand and Cost Shocks

Survey Evidence from Austrian Firms

Chapter:
(p.55) 3 Price Reactions to Demand and Cost Shocks
Source:
Pricing Decisions in the Euro Area
Author(s):

Claudia Kwapil

Josef Baumgartner

Johann Scharler

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195309287.003.0004

This chapter investigates price rigidity after cost and demand shocks in Austria. We find that the average time lag between a shock and the price adjustment is four to six months. Furthermore, firms' price reactions to cost and demand shocks are asymmetric: prices are stickier downward than upward in the face of cost shocks and the opposite is true in the case of major demand shocks. Finally, our results suggest that tight customer relationships increase price stickiness in response to demand shocks.

Keywords:   Price adjustment, price rigidity, customer relationships, asymmetric price reaction

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