Price fluctuations, changes in demand, production costs and investments

Three ideas will be investigated in this project. They are all based on a unique survey of micro level data from Statistics Norway (SSB), where monthly prices (and prices changes) are observed for several products produced by a sample of firms. The fir st issue is related to the existence and size of menu costs for prices. The method used for this is a structural approach, which means that one makes inference about parameters which are interpreted directly from a theoretical-economic optimization model. Many of the existing approaches are based mostly on a set of assumptions that are difficult to verify. The model predictions with and without the estimated menu costs will be analysed. Another issue is related to it to distinguish between the effects of demand changes and changes in production costs, i.e. two different candidates for external sources price rigidities. For example, Loupius and Sevestre (2012) find that changes in input prices are the main factor behind the price changes to French industr y (see also Vermeulen et al. (2012) and Dhyne (2006)). With the detailed data on product prices, production costs and quantities it should be possible to learn more about what the main reason for the prices changes of firms' products are - demand shocks o r changes in factor prices. One last question we want to analyse is temporal aggregation. Since Statistics Norway follows the same firms over several consecutive months, the data is a unique opportunity to see how temporal aggregation from the monthly fi gures to the annual ones affect the conclusions that we have drawn so far in the literature on price changes and menu- and adjustment costs, since these data only is based on annual price changes.