Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2004:7: Price and Investment Dynamics: An Empirical Analysis of Plant Level Data

Magnus Lundin, Nils Gottfries () and Tomas Lindström
Additional contact information
Magnus Lundin: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Nils Gottfries: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Tomas Lindström: Konjunkturinstitutet, Postal: Box 3116, SE - 103 62 Stockholm, Sweden

Abstract: Price and investment equations are estimated using a unique data set for Swedish manufacturing plants. The empirical specification is based on a theoretical model of a financially constrained firm selling its output in a customer market. We find that, as predicted by our theoretical model, prices respond strongly to cost shocks but are not much affected by variations in demand and high predetermined investment is associated with a higher price.

Keywords: Cyclical price adjustment; price rigidity; price equation; countercyclical markup

JEL-codes: D43; L11; L13

41 pages, June 18, 2004

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