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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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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 23 October 2020

Price Reactions to Demand and Cost Shocks

Price Reactions to Demand and Cost Shocks

Survey Evidence from Austrian Firms

(p.55) 3 Price Reactions to Demand and Cost Shocks
Pricing Decisions in the Euro Area

Claudia Kwapil

Josef Baumgartner

Johann Scharler

Oxford University Press

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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