Working Paper Series no. 138: Sticky Prices in the Euro Area: A Summary of New Micro Evidence

Abstract

This paper presents original evidence on price setting in the euro area at the individual level. We use micro data on consumer (CPI) and producer (PPI) prices, as well as survey information. Our main findings are: (i) prices in the euro area are sticky and more so than in the US; (ii) there is evidence of heterogeneity and of asymmetries in price setting behaviour; (iii) downward price rigidity is only slightly more marked than upward price rigidity and (iv) implicit or explicit contracts and coordination failure theories are important, whereas menu or information costs are judged much less relevant by firms.

Luis J. Álvarez, Emmanuel Dhyne, Marco Hoeberichts, Claudia Kwapil, Hervé Le Bihan, Patrick Lünnemann, Fernando Martins, Roberto Sabbatini, Harald Stahl, Philip Vermeulen and Jouko Vilmunen
November 2005

Classification JEL : C25, D40, E31.

Keywords : Price setting, Price stickiness, Consumer prices, Producer prices, survey data.