Financial Market Imperfections and the Pricing
Decision of Firms : Theory and Evidence
Almut BALLEER
Institute of International Economic Studies
Stockholm University
Abstract
This paper investigates how financial market imperfections and nominal
rigidities interact. Based on new firm-level evidence for Germany, we
document that financially constrained firms adjust prices more often than
their unconstrained counterparts. In particular, financially constrained firms
do not only increase prices, but also decrease prices more often. We show
that these empirical patterns are consistent with a partial equilibrium menucost model with financial frictions. Our results suggest that tighter financial
constraints are associated with higher nominal rigidities, higher prices and
lower output. Furthermore, financial recessions may induce very different
dynamics than normal recessions if the relative size of unexpected financial
shocks is large relative to aggregate price shocks.
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Monday, October 12, 2015 – 4:00 p.m. – Room b - 135
Center for Operations Research and Econom etrics
Voie du Roman Pays 34, 1348 Louvain-la-Neuve
http://www.uclouvain.be/en-43677.html