This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises and the 1994-95 Mexican collapse. We also discuss the small number of successful fixers.

The Mirage of Fixed Exchange Rates

Internal migration in developed countries

This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, robust across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly time-dependent pricing rules while two-thirds allow for elements of state-dependence. The majority of firms take into account past and expected economic developments in their pricing decisions. Price stickiness is mainly driven by customer relationships - explicit and implicit contracts - and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.

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The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence

/pdf/sticky-prices-in-the-euro-area-a-summary-of-new-micro-aip9uw6iuz.pdf

Sticky prices in the euro area: a summary of new micro

Prices of goods and services do not adjust immediately in response to changing demand and supply conditions. This paper characterizes the average frequency and size of price changes in the euro area and its member countries, investigates the determinants of the probability of price changes, and compares the evidence for the euro area with available U.S. results. The facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except Ireland and Greece: that is in datasets covering Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, and Spain, which together account for around 97 percent of euro area GDP. The data used are the monthly price records underlying the computation of national Consumer Price Indices and Harmonized Consumer Price Indices. These data cover a large number of products selected on the basis of extensive Household Budget Surveys.

https://pubs.aeaweb.org/doi/10.1257/jep.20.2.171

Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data

This paper explores the price-setting behavior of Austrian firms based on survey evidence. Our main result is that customer relationships are a major source of price stickiness in the Austrian economy. We also find that the majority of firms in our sample follows a time-dependent pricing strategy. However, a substantial fraction of firms deviates from time-dependent pricing in the case of large shocks and switches to a state-dependent pricing strategy. In addition, we present evidence suggesting that the price response to various shocks is subject to asymmetries.

The Price-Setting Behavior of Austrian Firms: Some Survey Evidence

We assess empirically the vertical price transmission mechanism between producer and consumer prices of milk products in Austria using monthly data for the period from January 1996 to February 2010. We consider explicitly the existence of asymmetries in the adjustment to the long-run equilibrium using two different types of threshold vector error correction (VEC) models, where an inaction band in the adjustment to the long-run relationship is defined and alternatively where price dynamics differ between periods of increasing and decreasing trends in causal prices. Our results indicate that asymmetries play an important role in the pass-through of prices for milk products in Austria. We provide statistical evidence concerning the fact that the adjustment only tends to take place when deviations from the equilibrium are large enough. Milk, dairy and cheese products and butter tend to remain in positive margins (measured as deviations from the long-run equilibrium) for the retailers' side. The explicit modeling of nonlinearities does not improve out-of-sample forecasting performance.

Milking the Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria

This paper explores the price-setting behavior of Austrian firms based on survey evidence. Our main result is that customer relationships are a major source of price stickiness in the Austrian economy. We also find that the majority of firms in our sample follows a timedependent pricing strategy. However, a substantial fraction of firms deviates from time-dependent pricing in the case of large shocks and switches to a state-dependent pricing strategy. In addition, we present evidence suggesting that the price response to various shocks is subject to asymmetries. JEL Classification: C25, E30

We assess empirically the vertical price transmission mechanism between producer and consumer prices of milk products in Austria using monthly data for the period from January 1996 to February 2010. We consider explicitly the existence of asymmetries in the adjustment to the long-run equilibrium using two different types of threshold vector error correction (VEC) models, where an inaction band in the adjustment to the long-run relationship is defined and alternatively where price dynamics differ between periods of increasing and decreasing trends in causal prices. Our results indicate that asymmetries play an important role in the pass-through of prices of milk products in Austria. We provide statistical evidence concerning the fact that the adjustment only tends to take place when deviations from the equilibrium are large enough. Milk, dairy and cheese products and butter tend to remain in positive margins (measured as deviations from the long-run equilibrium) for the retailers' side. The explicit modelling of non-linearities does not improve out-of-sample forecasting performance.

https://www.econstor.eu/bitstream/10419/73501/1/744749395.pdf

Milking The Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria

/pdf/wifo-macromod-an-econometric-model-of-the-austrian-economy-2z3gwy5ij8.pdf

Josef Baumgartner

Papers

The Price-Setting Behavior of Austrian Firms: Some Survey Evidence

Milking the Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria

The Price-Setting Behavior of Austrian Firms: Some Survey Evidence

Milking The Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria

WIFO-Macromod. An Econometric Model of the Austrian Economy