Abstract
This paper studies whether menu costs are large enough to explain why …rms are so reluctant to change their prices. Without actually estimating menu costs, we can infer their signi…cance for …rms’price setting decisions indirectly from observed pricing behaviour around a currency changeover. Using data from the Euro-changeover, the paper estimates that menu costs can explain a stickiness of around 35 days which is considerably less than the 7 to 18-month stickiness we observe in retailing. The reluctance of …rms to adjust prices more frequently appears to be caused by factors other than menu costs.
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