Abstract
The article examines price setting in Lithuania, based on the ad hoc survey “On Price and Wage Setting” of the Bank of Lithuania. The study extends the survey data analysis presented in Virbickas (2009). The article points to the incidence of both time-dependent and state-dependent price reviewing policies used by the firms under study, though the price reviewing practices appear to be somewhat tilted to the state-dependent pricing. Analysis provides evidence on the reasons for the upward and downward stickiness of prices. Delayed price adjustment is found to be related to the price adjustment rather than the price reviewing stage. The most momentous explanations for not adjusting prices upwards or downwards rest on the cost-based pricing and the explicit contracts. The study finds an asymmetric influence of some of the price factors. In particular, the cost factors are found to be decisive in invoking a price increase rather than a price decrease.
Highlights
The ways prices are determined may have an impact on the real economic output
The study draws on the experience of the euro area countries that have carried out a research within the Inflation Persistence Network (IPN) coordinated by the European Central Bank
As opposed to practices observed in other economic activities, the state-dependent price review appears to be less widely used than the time-dependent one
Summary
The ways prices are determined may have an impact on the real economic output. Economic shocks may have effects if prices are adjusted in a less responsive pattern. The network conducted price setting research based, among other sources, on firm-level data obtained from the surveys undertaken in nine euro area countries. The purpose of the study was to investigate the price-setting practices of Lithuanian firms, determining the factors, ways and outcomes of pricing. The continuation of the survey data analysis covers a few pricing aspects It considers time-dependent and state-dependent price-reviewing practices as these practices have implications for the degree of price responsiveness. The study looks into the reasons for the delayed price adjustment when there are some motives to increase or lower prices It investigates ten potential explanations for the upward and downward stickiness of prices. The article, touches asymmetries in price adjustment It shows the differences in price response to both heightened and dampened demand and in response to higher and lower costs.
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