Research Discussion Papers, Bank of Finland
No 30/2006:
The importance of attractive prices in pricing dynamics
Ville Aalto-Setälä and Robert Schindler
Abstract: Nominal rigidities have an important role in macro models
used for the analysis of monetary policy. Re-cently, attractive prices
(also known as price points) have often been referred to as one important
potential explanation of nominal rigidities. An increased interest on
attractive prices as an explanation for price ri-gidities rests on online
pricing, in the context of which it has been shown that prices are rigid
also on the internet, where physical costs are not important. Our empirical
analyses using micro data on consumer prices in Finland indicate that a
specific form of attractive prices – 9-ending prices – have a considerable
effect on pricing dynamics. The results of the study show that changes to
prices with 9 endings are more often decreases than are changes to prices
with other endings. Price changes to 9-ending prices are also of smaller
size than are changes to other endings.
Keywords: rigidity; price endings; attractive prices; 9-prices; (follow links to similar papers)
JEL-Codes: D01; E42; (follow links to similar papers)
32 pages, November 30, 2006
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