Price Setting Behavior in Israel –An Empirical Analysis Using Microdata

01/07/2013 |  Sayag Doron, Ribon Sigal
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Monetary Policy and Inflation

Abstract:
The paper studies pricing behavior in Israel, using a very large dataset containing more than 3 million observations drawn from the Israel Central Bureau of Statistics (CBS) database, covering all CPI components except housing and fruit and vegetables. The mean duration between price changes is about 6 to 9 months, depending on the method of computation. We find considerable heterogeneity in the frequency of price changes within and between sectors. We also find that the inflation environment, outlet characteristics and seasonality affect pricing behavior. Changes in VAT have some impact on duration but generally only affect the size of price changes of the most flexible prices.
According to our analysis, the size of the average price change is 3.5%. Price reductions constitute about a third of price changes, and their average size, about 10%, is similar to that of price increases