DP6227 Evidence from Surveys of Price-Setting Managers: Policy Lessons and Directions for Ongoing Research

Author(s): Vítor Gaspar, Andrew Levin, Fernando Manuel Martins, Frank Smets
Publication Date: March 2007
Keyword(s): monetary policy, New Keynesian models, price setting, price stickiness
JEL(s): D4, E1, E3
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6227

Understanding the features and the determinants of individual price setting behaviour is important for the formulation of monetary policy. These behavioural 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, a collaborative research effort of the Eurosystem, analysed a large number of panel data sets of individual price records and conducted surveys of price-setting managers in many euro area countries. This paper discusses to what extent the extensive 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.