Published:
Cambridge, Mass: National Bureau of Economic Research, June 2013
Published in:NBER working paper series ; no. w19180
Extent:
1 Online-Ressource
Language:
English
DOI:
10.3386/w19180
Identifier:
Reproduction note:
Hardcopy version available to institutional subscribers
Origination:
Footnote:
Mode of access: World Wide Web
System requirements: Adobe [Acrobat] Reader required for PDF files
Description:
Does time-varying business uncertainty/volatility affect the price setting of firms and, if so, in what way? To address this question, we estimate from the firm-level micro data of the German ifo Business Climate Survey the impact of idiosyncratic volatility on the extensive margin of the price setting behavior of firms. We find that heightened business uncertainty increases the probability of a price change, which suggests that, for price setting, the volatility effect dominates the "wait-and-see" effect of uncertainty. In a second step, we use structural VAR models to estimate the effects of time-varying business uncertainty on the intensive pricing margin. We find that higher business uncertainty leads to both an increase in price dispersion and in the average size of absolute price changes which is mainly driven by price decreases. Taken together, our results show that higher business uncertainty causes a rise in both the extensive and intensive margins of price setting