WAGE DYNAMICS
NETWORK
Costs, demand,
and producer
price changes
by Claire Loupias
and Patrick Sevestre
Wo r k i n g Pa p e r S e r i e s
N o 1 1 8 4 / A P RI L 2 0 1 0
WO R K I N G PA P E R S E R I E S
N O 118 4 / A P R I L 2010
WAGE DYNAMICS
NETWORK
COSTS, DEMAND,
AND PRODUCER PRICE CHANGES1
by Claire Loupias 2
and Patrick Sevestre 3
NOTE: This Working Paper should not be reported as representing
the views of the European Central Bank (ECB).
The views expressed are those of the authors
and do not necessarily reflect those of the ECB.
In 2010 all ECB
publications
feature a motif
taken from the
€500 banknote.
This paper can be downloaded without charge from http://www.ecb.europa.eu
or from the Social Science Research Network electronic library
at http://ssrn.com/abstract_id=1588767.
1 This study was initiated in the context of the Eurosystem Inflation Persistence Network. We are grateful to R. Ricart and B. Fougier for having provided
us with the series of the monthly manufacturing business surveys of the Banque de France, as well as to the DARES (Direction de l. Animation de la
Recherche, des Études et des Statistiques, French Ministry of Labor), for having provided the data about wages. Thanks also to P. Franceschi and
A. Gubian, from the ACOSS (Agence Centrale des Organismes de Sécurité Sociale) who gave us access to the monthly industry level wage bill
series used in previous versions of this paper. We are also strongly indebted to T. Heckel, H. Le Bihan, E. Gautier and to colleagues from the
Wage Dynamics Network of the Eurosystem for helpful discussions. We would like to thank also the participants to seminars at INRA
(Rennes), at the Université Paris 1 – Panthéon Sorbonne, at Monash University, to the AFSE annual conference (Paris), the JMA conference
(Fribourg) and the WDN conference (Frankfurt) for their comments and suggestions, with a special mention to E. Wasmer and T. Bewley.
Last but not least, we are much grateful to L. Baudry and S. Tarrieu for their wonderful research assistance. The usual disclaimer applies.
In particular, the views expressed herein are those of the authorsand do not necessarily reflect those of the Banque de France.
2 Claire Loupias was belonging to the Research Department of the Banque de France when the first draft
of this paper was written. EPEE, TEPP (FR-CNRS 3126) Université d.Evry Val d.Essonney.
3 Corresponding author : Banque de France, SAMIC-DEMS-DGEI and Paris School of Economics,
Université de Paris I – Panthéon Sorbonne, e-mail : [email protected]
Wage Dynamics Network
This paper contains research conducted within the Wage Dynamics Network (WDN). The WDN is a
research network consisting of economists from the European Central Bank (ECB) and the national central
banks (NCBs) of the EU countries. The WDN aims at studying in depth the features and sources of wage
and labour cost dynamics and their implications for monetary policy. The specific objectives of the network
are: i) identifying the sources and features of wage and labour cost dynamics that are most relevant for
monetary policy and ii) clarifying the relationship between wages, labour costs and prices both at the firm
and macro-economic level.
The WDN is chaired by Frank Smets (ECB). Giuseppe Bertola (Università di Torino) and Julián Messina
(World Bank and University of Girona) act as external consultants and Ana Lamo (ECB) as Secretary.
The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB,
chairperson), Philip Vermeulen (ECB), Giuseppe Bertola, Julián Messina, Jan Babecký (CNB), Hervé Le
Bihan (Banque de France) and Thomas Mathä (Banque centrale du Luxembourg).
The paper is released in order to make the results of WDN research generally available, in preliminary
form, to encourage comments and suggestions prior to final publication. The views expressed in the paper
are the author’s own and do not necessarily reflect those of the ESCB.
© European Central Bank, 2010
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Any reproduction, publication and
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electronically, in whole or in part, is
permitted only with the explicit written
authorisation of the ECB or the authors.
Information on all of the papers published
in the ECB Working Paper Series can be
found on the ECB’s website, http://www.
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html/index.en.html
ISSN 1725-2806 (online)
CONTENTS
Abstract
4
Non-technical summary
5
1 Introduction
7
2 Changes in prices versus changes in the firms
environment: some basic facts
9
3 The model: a simple state-dependent
pricing model
3.1 The optimal (frictionless) price
3.2 The desired price change
3.3 The price change rule
13
13
14
16
4 The dataset
4.1 Data sources
4.2 The econometric database
17
18
21
5 Estimation results
5.1 The econometric model
5.2 The baseline model estimates
5.3 Are current and recent variations in
the environment more likely to induce
price changes?
5.4 What about asymmetries?
23
23
26
6 Conclusion
36
7 References
36
Appendix
41
Tables
47
30
34
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40
ECB
Working Paper Series No 1184
April 2010
" 6-- '45+.#5+0/ 3'46-54
Table A1: State-dependent model estimates
Ordered probit with 5 outcomes
Ordered probit with 3 outcomes
Rivers-Vuong and
Simple Probit Rivers-Vuong Rivers-Vuong and Rivers-Vuong
Wooldridge for
method for
Wooldridge for
method for
endogenous var. unobs. Heterog.
endogenous var.
unobs. Heterog.
Coeff Z-stat Coeff
Z-stat
Coeff
Z-stat Coeff
Z-stat
Coeff
Z-stat
cum_ii_price
0.041 17.82 0.127
29.36
0.144
28.48
0.181
29.06
0.195
27.06
cum_wage
-0.003 -1.10 0.001
0.07
-0.001
-0.07 -0.015
-1.45
-0.010
-0.83
cum_prod
0.008
4.90 0.032
9.63
0.025
6.62
0.046
9.12
0.038
6.69
cum_sect_price 0.013
4.59 0.105
18.99
0.110
17.36
0.109
19.18
0.117
17.95
vat_2000
0.122
1.79 0.080
1.17
0.095
1.36
0.084
1.19
0.098
1.35
vat_2000_2
-0.051 -1.27 0.009
0.22
-0.001
-0.03
0.008
0.20
0.000
0.00
Euro_2002
0.042
0.85 0.043
0.85
0.047
0.91
0.037
0.71
0.038
0.71
Euro_2002_2
-0.101 -4.73 -0.018
-0.81
-0.020
-0.88 -0.005
-0.21
-0.009
-0.39
q1
-2.274 -95.92 -2.188
-83.52
-2.368
-65.48 -1.380
-57.72
-1.481
-42.48
q2
-1.451 -71.03 -1.362
-58.64
-1.467
-43.77
q3
1.232 61.35 1.356
58.53
1.429
42.79
1.341
56.30
1.425
41.09
q4
2.031 90.29 2.174
85.22
2.291
64.90
sect_c1
-0.032 -0.85 -0.086
-2.24
-0.103
-1.52 -0.086
-2.23
-0.110
-1.60
sect_c2
-0.243 -6.49 -0.199
-5.27
-0.213
-3.08 -0.227
-5.90
-0.246
-3.52
sect_c3
-0.057 -1.50 -0.279
-7.03
-0.271
-3.87 -0.279
-6.94
-0.291
-3.98
sect_c4
0.011
0.40 -0.078
-2.79
-0.078
-1.56 -0.107
-3.73
-0.105
-2.01
sect_d0
-0.148 -5.00 -0.243
-7.87
-0.294
-5.27 -0.250
-7.81
-0.318
-5.39
sect_e1
-0.189 -5.11 -0.262
-6.79
-0.335
-4.71 -0.272
-6.95
-0.360
-4.91
sect_e2
-0.019 -0.84 -0.125
-5.38
-0.132
-3.17 -0.141
-5.93
-0.148
-3.39
sect_e3
-0.135 -3.10 0.036
0.80
0.023
0.30
0.038
0.83
0.032
0.41
sect_f1
0.012
0.44 -0.101
-3.75
-0.082
-1.63 -0.154
-5.60
-0.148
-2.86
sect_f2
-0.171 -5.50 -0.206
-6.57
-0.209
-3.49 -0.254
-7.95
-0.244
-3.98
sect_f3
-0.123 -5.43 -0.104
-4.54
-0.084
-1.96 -0.122
-5.23
-0.095
-2.10
sect_f4
0.033
1.51 -0.056
-2.49
-0.066
-1.63 -0.073
-3.18
-0.074
-1.75
sect_f5
0.078
3.61 -0.047
-2.14
-0.056
-1.37 -0.061
-2.67
-0.066
-1.58
sect_f6
-0.292 -6.09 -0.344
-7.10
-0.357
-4.68 -0.378
-7.66
-0.381
-4.86
year_1999
0.027
0.74 0.078
2.06
0.075
1.81
0.093
2.40
0.098
2.30
year_2000
0.221
8.14 0.143
5.08
0.156
4.96
0.131
4.59
0.150
4.65
year_2001
-0.008 -0.34 0.011
0.45
0.018
0.67 -0.002
-0.08
0.003
0.11
year_2002
-0.105 -4.66 -0.027
-1.18
-0.013
-0.52 -0.022
-0.93
-0.011
-0.43
year_2003
-0.203 -10.67 -0.106
-5.43
-0.095
-4.45 -0.097
-4.89
-0.090
-4.11
year_2004
0.042
2.29 0.037
1.97
0.043
2.19
0.043
2.26
0.052
2.58
y_0
0.032
1.95
0.048
2.16
1st stage residuals
cum_ii_price
-0.114
-22.60
-0.106
-18.87 -0.161
-22.20
-0.142
-17.50
cum_wage
0.012
1.51
0.009
1.07
0.028
2.55
0.011
0.92
cum_prod
-0.028
-7.38
-0.018
-4.37 -0.042
-7.13
-0.029
-4.49
cum_sect_price
-0.119
-18.44
-0.117
-16.40 -0.126
-18.85
-0.126
-16.99
rho=su/(su+sw)
0.128
22.56
0.135
22.17
-35,013
-34,074
-30,351
-29,412
LogL
35,482
Number of obs.
51,067
51,067
51,067
51,067
51,067
ECB
Working Paper Series No 1184
April 2010
41
with
sect_b0
sect_c1
sect_c2
sect_c3
sect_c4
sect_d0
sect_e1
sect_e2
sect_e3
sect_f1
sect_f2
sect_f3
sect_f4
sect_f5
sect_f6
Agri-food industries
Clothing and leather goods
Publishing and printing
Pharmaceuticals, perfumes and cleaning products
Household equipment
Automotive industry
Shipbuilding, aircraft and rail construction
Mechanical equipment
Electrical and electronic equipment
Mineral products
Textiles
Wood and paper
Chemicals, rubber and plastics
Metalwork and fabricated metal products
Electrical and electronic components
and with rho=su/(su+sw) the share of the firm specific effect variance in the total variance.
sect_b0 is the reference sector in all regressions below.
42
ECB
Working Paper Series No 1184
April 2010
Table A2: Estimates of a flexible dynamic model
ii_price
ii_price(-1)
ii_price(-2)
ii_price(-3)
remain_cum_iip
wage
wage(-1)
wage(-2)
wage(-3)
remain_cum_wage
prod
prod(-1)
prod(-2)
prod(-3)
remain_cum_prod
sect_price
sect_price(-1)
sect_price(-2)
sect_price(-3)
remain_cum_price
vat_2000
vat_2000_2
Euro_2002
Euro_2002_2
q1
q2
q3
q4
sect_c1
sect_c2
sect_c3
sect_c4
sect_d0
sect_e1
sect_e2
sect_e3
sect_f1
sect_f2
sect_f3
sect_f4
sect_f5
sect_f6
year_1999
year_2000
year_2001
year_2002
year_2003
year_2004
Ordered probit with 5 outcomes
Simple Probit
Rivers-Vuong Rivers-Vuong and
method for
Wooldridge for
endog. var.
unobs. heterog.
Coeff
Z-stat Coeff
Z-stat Coeff
Z-stat
0.434
49.52
1.100
5.07
1.188
5.32
-0.069
-5.75 -0.266
-2.51 -0.265
-2.43
-0.011
-0.80 -0.056
-1.51 -0.042
-1.10
0.020
1.34
0.051
1.80
0.071
2.44
-0.010
-2.79
0.022
1.15
0.043
2.18
0.024
3.28
0.170
7.05
0.181
7.31
0.000
-0.04
0.012
1.08
0.011
1.00
0.009
1.01
0.018
1.47
0.018
1.41
-0.004
-0.41
0.005
0.36
0.004
0.33
0.009
2.71
0.046
3.59
0.048
3.53
0.043
9.32
0.039
0.91
0.035
0.80
0.006
1.05
0.019
2.41
0.014
1.78
0.002
0.30
0.021
2.88
0.016
2.11
-0.009
-1.51 -0.002
-0.26 -0.009
-1.06
0.007
3.06
0.039
6.46
0.033
5.00
0.238
18.11
0.148
10.58
0.163
11.20
0.022
1.36
0.107
4.66
0.118
4.98
0.003
0.14
0.102
4.29
0.110
4.46
-0.011
-0.55
0.103
3.73
0.114
3.98
-0.006
-1.52
0.055
4.46
0.055
4.17
0.087
1.26
0.069
0.96
0.078
1.07
-0.141
-3.45 -0.134
-3.01 -0.152
-3.30
0.064
1.24
0.041
0.64
0.047
0.71
-0.073
-3.35 -0.020
-0.89 -0.017
-0.72
-2.315 -95.64 -2.194 -76.48 -2.373 -62.19
-1.473 -70.60 -1.348 -52.22 -1.447 -40.79
1.308
63.61
1.460
56.40
1.551
43.70
2.174
92.91
2.349
82.35
2.487
65.87
-0.031
-0.81 -0.103
-2.52 -0.125
-1.80
-0.264
-6.94 -0.239
-6.19 -0.253
-3.53
-0.054
-1.40 -0.233
-5.34 -0.230
-3.18
0.010
0.34 -0.080
-2.71 -0.087
-1.68
-0.169
-5.60 -0.303
-9.16 -0.370
-6.49
-0.184
-4.88 -0.289
-7.02 -0.364
-5.03
-0.058
-2.54 -0.201
-7.24 -0.214
-4.76
-0.073
-1.66
0.012
0.24 -0.002
-0.03
-0.015
-0.56 -0.102
-3.57 -0.096
-1.83
-0.156
-4.95 -0.186
-5.73 -0.183
-2.93
-0.137
-6.01 -0.141
-5.80 -0.131
-2.90
-0.006
-0.25 -0.124
-4.49 -0.149
-3.33
-0.008
-0.37 -0.143
-4.69 -0.165
-3.63
-0.298
-6.11 -0.346
-7.03 -0.367
-4.78
-0.057
-1.52 -0.045
-0.86 -0.049
-0.88
0.134
4.80
0.046
1.16
0.057
1.33
0.061
2.52
0.134
4.48
0.159
4.87
-0.108
-4.70 -0.033
-1.35 -0.008
-0.31
-0.184
-9.47 -0.112
-5.50 -0.090
-4.04
-0.051
-2.67 -0.141
-3.51 -0.146
-3.50
Ordered probit with 3 outcomes
Rivers-Vuong Rivers-Vuong and
method for
Wooldridge for
endog. var.
unobs. heterog.
Coeff
Z-stat Coeff
Z-stat
1.623
5.72
1.737
5.92
-0.361
-2.86 -0.361
-2.77
-0.105
-2.07 -0.092
-1.77
0.060
1.64
0.078
2.06
0.049
2.05
0.067
2.65
0.213
5.38
0.231
5.63
0.001
0.05
0.005
0.25
-0.007
-0.34 -0.002
-0.10
-0.054
-2.24 -0.051
-2.01
0.004
0.22
0.015
0.79
0.037
0.55
0.039
0.57
0.025
2.31
0.021
1.83
0.042
3.60
0.037
3.06
-0.010
-0.73 -0.019
-1.32
0.058
6.14
0.052
5.02
0.160
11.18
0.179
11.92
0.103
4.39
0.115
4.76
0.112
4.59
0.124
4.88
0.112
3.96
0.126
4.29
0.059
4.63
0.063
4.59
0.082
1.11
0.092
1.21
-0.131
-2.91 -0.145
-3.09
0.062
0.97
0.066
1.01
-0.008
-0.33 -0.005
-0.22
-1.389 -53.03 -1.480 -40.47
1.427
54.49
1.535
41.99
-0.072
-0.249
-0.216
-0.111
-0.293
-0.248
-0.202
0.056
-0.157
-0.215
-0.149
-0.133
-0.156
-0.388
-0.086
-0.012
0.126
-0.026
-0.096
-0.137
-1.76
-6.31
-4.80
-3.63
-8.45
-5.82
-7.34
1.15
-5.32
-6.46
-6.16
-4.90
-5.30
-7.71
-1.53
-0.27
4.10
-1.05
-4.61
-3.58
-0.097
-0.267
-0.232
-0.107
-0.367
-0.337
-0.220
0.057
-0.161
-0.200
-0.122
-0.148
-0.173
-0.397
-0.082
0.000
0.150
-0.005
-0.077
-0.140
-1.37
-3.64
-3.10
-1.94
-6.02
-4.46
-4.79
0.72
-2.99
-3.17
-2.66
-3.29
-3.81
-5.02
-1.38
0.01
4.47
-0.17
-3.36
-3.52
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April 2010
43
Table A2 (cont.): Estimates of a flexible dynamic model
y_0
1st stage residuals
ii_price
ii_price(-1)
ii_price(-2)
ii_price(-3)
remain_cum_iip
wage
wage(-1)
wage(-2)
wage(-3)
remain_cum_wage
prod
prod(-1)
prod(-2)
prod(-3)
remain_cum_prod
sect_price(-1)
sect_price(-2)
sect_price(-3)
remain_cum_price
rho=su/(su+sw)
LogL
44
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Ordered probit with 5 outcomes
Simple Probit
Rivers-Vuong Rivers-Vuong and
method for
Wooldridge for
endog. var.
unobs. heterog.
Coeff
Z-stat Coeff
Z-stat Coeff
Z-stat
0.043
2.64
-0.708
0.061
0.019
-0.063
-0.037
-0.157
0.008
0.032
0.027
-0.029
0.003
-0.068
-0.065
-0.021
-0.036
-0.240
-0.175
-0.185
-0.061
-34,068
-33,632
-3.26
0.57
0.47
-1.94
-1.92
-6.21
0.44
1.70
1.43
-2.21
0.07
-5.33
-5.55
-1.77
-5.58
-6.90
-4.99
-4.97
-4.70
-0.753
-3.37
0.071
0.65
0.019
0.45
-0.068
-2.03
-0.045
-2.27
-0.170
-6.52
0.006
0.32
0.024
1.22
0.017
0.84
-0.034
-2.45
0.005
0.11
-0.052
-3.93
-0.050
-4.10
-0.006
-0.52
-0.028
-4.00
-0.240
-6.71
-0.173
-4.81
-0.203
-5.27
-0.055
-3.98
0.128
22.76
-32,676
Ordered probit with 3 outcomes
Rivers-Vuong Rivers-Vuong and
method for
Wooldridge for
endog. var.
unobs. heterog.
Coeff
Z-stat Coeff
Z-stat
0.060
2.72
-1.101
0.066
0.014
-0.099
-0.061
-0.227
0.044
0.150
0.149
0.015
0.022
-0.094
-0.113
-0.030
-0.054
-0.257
-0.198
-0.218
-0.067
-29,022
-3.88
0.51
0.24
-2.28
-2.48
-5.37
1.26
4.45
4.32
0.84
0.32
-4.67
-5.98
-1.53
-5.29
-7.05
-5.40
-5.66
-5.00
-1.162
-3.96
0.083
0.62
0.019
0.33
-0.099
-2.20
-0.063
-2.45
-0.244
-5.57
0.016
0.45
0.112
3.19
0.117
3.25
-0.003
-0.15
0.018
0.25
-0.076
-3.60
-0.096
-4.88
-0.011
-0.54
-0.042
-3.85
-0.258
-6.84
-0.198
-5.24
-0.239
-5.96
-0.063
-4.42
0.134
22.29
-28,086
Table A3: Estimates of a model with asymmetries
ii_price
ii_price(-1)
ii_price(-2)
ii_price(-3)
remain_cum_iip
wage
wage(-1)
wage(-2)
wage(-3)
remain_cum_wage
prod
prod(-1)
prod(-2)
prod(-3)
remain_cum_prod
sect_price
sect_price(-1)
sect_price(-2)
sect_price(-3)
remain_cum_price
vat_2000
vat_2000_2
Euro_2002
Euro_2002_2
q1
q2
q3
q4
sect_c1
sect_c2
sect_c3
sect_c4
sect_d0
sect_e1
sect_e2
sect_e3
sect_f1
sect_f2
sect_f3
sect_f4
sect_f5
sect_f6
year_1999
year_2000
year_2001
year_2002
year_2003
year_2004
Ordered probit with 5 outcomes
Effect of a
Effect of an
decrease in x
increase in x
Coeff
Z-stat Coeff
Z-stat
-0.355 -0.74
1.370
5.87
0.232
1.17
-0.271
-2.29
0.041
0.55
-0.046
-0.66
0.068
0.85
0.085
1.19
0.132
1.95
0.022
0.35
0.988
1.54
0.210
6.21
-0.067 -2.30
0.034
2.90
-0.027 -0.83
0.040
2.46
-0.027 -0.62
0.035
1.17
-0.016 -0.39
0.054
2.75
0.298
2.42
-0.223
-2.00
-0.050 -1.50
0.065
3.24
-0.005 -0.25
0.047
2.91
-0.031 -1.25
0.027
1.33
-0.100 -1.40
0.119
3.14
0.039
1.37
0.204 10.08
0.100
2.42
0.077
1.66
-0.037 -0.77
0.221
5.15
0.025
0.35
0.167
2.59
0.019
1.01
0.058
1.88
0.028
0.36
-0.122 -2.43
0.081
1.16
-0.058 -2.09
-1.971 -21.72
-1.117 -12.46
1.697 18.89
2.585 28.46
-0.140 -1.43
-0.077 -1.23
-0.226 -2.13
0.015
0.26
-0.248 -3.83
-0.221 -2.67
-0.095 -1.82
-0.085 -1.02
0.020
0.33
-0.188 -2.96
-0.070 -2.02
-0.075 -2.10
-0.098 -2.37
-0.241 -4.06
0.029
0.29
0.077
1.34
0.121
2.76
-0.007 -0.18
-0.115 -3.27
-0.184 -4.41
Ordered probit with 3 outcomes
Effect of a
Effect of an
decrease in x
increase in x
Coeff
Z-stat Coeff
Z-stat
0.282
0.38
1.530
4.33
0.091
0.34
-0.225 -1.46
-0.001
-0.01
-0.025 -0.26
0.014
0.12
0.135
1.45
0.182
1.39
0.030
0.33
2.432
2.66
0.400
4.30
-0.054
-1.07
0.006
0.23
-0.071
-1.20
0.052
1.46
-0.066
-1.00
0.039
0.76
-0.240
-1.87
0.017
0.71
0.193
1.02
-0.116 -0.49
-0.015
-0.28
0.070
2.00
0.018
0.54
0.071
2.56
-0.009
-0.27
0.022
0.66
-0.061
-0.58
0.119
2.12
0.047
1.61
0.223 10.54
0.070
1.63
0.161
3.20
-0.003
-0.07
0.226
5.07
0.058
0.90
0.158
2.47
0.004
0.21
0.096
2.85
0.196
1.94
-0.090
-1.81
0.068
1.05
-0.007
-0.23
-1.142 -11.89
1.679
17.45
-0.132
-0.151
-0.250
-0.041
-0.237
-0.173
-0.085
-0.049
-0.081
-0.185
-0.109
-0.070
-0.122
-0.275
0.049
0.056
0.122
-0.001
-0.075
-0.114
-1.55
-2.19
-2.53
-0.75
-3.97
-2.50
-1.70
-0.66
-1.28
-3.38
-3.24
-2.03
-3.13
-4.19
0.49
1.02
2.79
-0.04
-1.96
-2.53
ECB
Working Paper Series No 1184
April 2010
45
Table A3 (cont.): Estimates of a model with asymmetries
Ordered probit with 5 outcomes
Effect of a
Effect of an
decrease in x
increase in x
Coeff
Z-stat Coeff
Z-stat
1st stage residuals
ii_price
ii_price(-1)
ii_price(-2)
ii_price(-3)
remain_cum_iip
wage
wage(-1)
wage(-2)
wage(-3)
remain_cum_wage
prod
prod(-1)
prod(-2)
prod(-3)
remain_cum_prod
sect_price(-1)
sect_price(-2)
sect_price(-3)
remain_cum_price
LogL
-0.993 -4.25
0.101
0.84
-0.004 -0.06
-0.127 -1.71
-0.031 -0.49
-0.190 -5.47
-0.044 -2.12
-0.018 -0.82
-0.021 -0.63
-0.046 -2.30
0.283
2.52
-0.085 -3.28
-0.064 -2.90
-0.004 -0.17
-0.112 -2.95
-0.256 -4.47
-0.293 -5.36
-0.279 -3.83
-0.065 -2.08
-33,543
0.778
-0.537
-0.071
-0.043
-0.153
-1.020
0.123
0.096
0.016
0.018
-0.275
-0.044
-0.074
-0.046
0.087
-0.162
-0.044
-0.046
-0.023
1.61
-2.67
-0.87
-0.50
-2.26
-1.59
1.81
1.65
0.25
0.40
-2.23
-1.15
-2.84
-1.56
1.22
-2.20
-0.60
-0.52
-1.15
Ordered probit with 3 outcomes
Effect of a
Effect of an
decrease in x
increase in x
Coeff
Z-stat Coeff
Z-stat
-1.037
-2.93
-0.007
-0.05
-0.105
-1.05
-0.219
-2.23
-0.034
-0.37
-0.403
-4.25
-0.043
-0.97
0.043
0.90
0.013
0.22
-0.010
-0.39
0.195
0.83
-0.077
-1.70
-0.104
-2.74
0.010
0.25
-0.109
-1.94
-0.377
-6.06
-0.316
-5.47
-0.290
-3.94
-0.106
-3.07
-28,954
0.291
-0.527
-0.045
0.000
-0.207
-2.473
0.194
0.134
0.150
0.223
-0.154
-0.138
-0.140
-0.113
0.047
-0.086
-0.067
-0.101
-0.008
Note: The estimates presented in this table are those obtained using Rivers-Vuong approach.
46
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0.39
-1.92
-0.35
0.00
-1.58
-2.70
1.93
1.39
1.57
1.67
-0.82
-2.25
-3.28
-2.56
0.45
-1.12
-0.88
-1.19
-0.39
Table 1: Changes in the environment and price changes
Price change
No price change
Total
Change in
No change in
the environment the environment
16.6%
2.4%
60.9%
20.1%
77.4%
22.6%
Total
19%
81%
100%
Source: Banque de France business surveys merged with the
ACEMO survey.
The dataset contains 51,067 observations about 2,401 firms and the
sample period is October 1998 to December 2005.
Table 2: Probability of a price change, conditional on cost variations
Probability
of occurrence
Change in input prices and wages
Change in input prices only
Change in wages only
No change in input prices nor wages
Total
6.1%
20.1%
16.0%
57.8%
100%
Price change
conditional on
cost variations
39.7%
36.7%
13.9%
12.1%
19.0%
Source: Banque de France business surveys merged with the ACEMO
survey.
The dataset contains 51,067 observations about 2,401 firms and the
sample period is October 1998 to December 2005.
ECB
Working Paper Series No 1184
April 2010
47
Table 3: Probability of price increases/decreases, conditional on cost variations
Probability
Price decrease Price increase
of occurrence conditional on conditional on
changes in t
changes in t
Decrease in both input price and wage
0.2%
27.0%
10.0%
Increase in both input price and wage
3.6%
9.5%
31.1%
Decrease in input price (wage stable or increased)
7.7%
28.4%
7.8%
Increase in input price (wage stable or decreased)
14.6%
8.0%
29.2%
No change in input price (wage stable or decreased)
59.9%
6.3%
5.7%
No change in input price and wage increased
14.0%
6.5%
7.8%
Source: Banque de France business surveys merged with the ACEMO survey.
The dataset contains 51,067 observations about 2,401 firms and the sample period is October 1998
to December 2005.
Table 4: Probability of a price change, conditional on production and cost changes
Probability
of occurrence
Change in both costs and production
Change in costs only
Change in production only
No change in costs nor production
Total
27.4%
14.8%
35.3%
22.5%
100%
Price change
conditional on
changes in t
30.1%
25.4%
12.9%
10.8%
19.0%
Source: Banque de France business surveys merged with the ACEMO survey.
The dataset contains 51,067 observations about 2,401 firms and the sample
period is October 1998 to December 2005.
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Table 5: Sectoral breakdown of the initial database and of the econometric
sample as of January 2005.
.
Business surveys Econometric
Industry
full database
sample
DA. - Food products, beverages and tobacco
DB. - Textiles and textile products
DC. - Leather and leather products
DD - Wood and wood products
DE - Pulp, paper and paper products
DF - Coke, refined petroleum and nuclear fuel
DG - Chemicals, chemical products
DH - Rubber and plastic products
DI - Other non-metallic mineral products
DJ - Basic metals and fabricated metal products
DK- Machinery and equipment n.e.c.
DL - Electrical and optical equipment
DM - Transport equipment
DN. - Manufacturing n.e.c
16.7%
6.8%
1.7%
3.7%
8.2%
7.4%
5.7%
4.8%
16.2%
9.4%
9.0%
5.8%
4.6%
16.6%
4.0%
1.7%
2.9%
8.8%
7.4%
6.5%
5.4%
16.6%
9.0%
7.8%
8.2%
5.1%
Number of firms
4,032
1,006
Source: Banque de France business surveys merged with the ACEMO survey
conducted by the French Ministry of Labor and Social Affairs. The dataset contains
51,057 ovservations from 2,401 firms observed monthly between October 1998 and
December 2005.
ECB
Working Paper Series No 1184
April 2010
49
Table 6: Frequency of price, costs and production level changes
/increases /decreases in the initial database and in the econometric
sample.
.
Business surveys
full database
Econometric
sample
Price changes
of which increases
of which decreases
18.6%
19.0%
Intermediate input price changes
of which increases
of which decreases
24.1%
Wage changes(14)
of which increases
of which decreases
18.1%
Production level changes
of which increases
of which decreases
62.1%
Number of observations
10.9%
7.7%
10.5%
8.5%
26.2%
17.0%
7.1%
18.2%
8.0%
22.1%
14.7%
3.4%
19.3%
2.8%
62.7%
36.1%
26.0%
479,744
34.8%
27.9%
51,067
(14) The initial database considered here for wage changes is extracted from
the ACEMO survey database; it includes about 600,000 observations about
wage changes at the establishment level.
50
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Table 7: State-dependent model estimates
Ordered probit with 5 outcomes
Ordered probit with 3 outcomes
Simple Probit Rivers-Vuong Rivers-Vuong and Rivers-Vuong
Rivers-Vuong and
method for
Wooldridge for
method for
Wooldridge for
endogenous var. unobs. Heterog.
endogenous var.
unobs. Heterog.
Coeff Z-stat Coeff
Z-stat
Coeff
Z-stat Coeff
Z-stat
Coeff
Z-stat
cum_ii_price
0.041 17.82 0.127
29.36
0.144
28.48
0.181
29.06
0.195
27.06
cum_wage
-0.003 -1.10 0.001
0.07
-0.001
-0.07 -0.015
-1.45
-0.010
-0.83
cum_prod
0.008
4.90 0.032
9.63
0.025
6.62
0.046
9.12
0.038
6.69
cum_sect_price 0.013
4.59 0.105
18.99
0.110
17.36
0.109
19.18
0.117
17.95
vat_2000
0.122
1.79 0.080
1.17
0.095
1.36
0.084
1.19
0.098
1.35
vat_2000_2
-0.051 -1.27 0.009
0.22
-0.001
-0.03
0.008
0.20
0.000
0.00
Euro_2002
0.042
0.85 0.043
0.85
0.047
0.91
0.037
0.71
0.038
0.71
Euro_2002_2
-0.101 -4.73 -0.018
-0.81
-0.020
-0.88 -0.005
-0.21
-0.009
-0.39
q1
-2.274 -95.92 -2.188
-83.52
-2.368
-65.48 -1.380
-57.72
-1.481
-42.48
q2
-1.451 -71.03 -1.362
-58.64
-1.467
-43.77
q3
1.232 61.35 1.356
58.53
1.429
42.79
1.341
56.30
1.425
41.09
q4
2.031 90.29 2.174
85.22
2.291
64.9
rho=su/(su+sw)
0.128
22.56
0.135
22.17
LogL
-35,013
-34,074
-30,351
-29,412
35,482
Number of obs.
51,067
51,067
51,067
51,067
51,067
Note: All the estimated models include industry specific and year dummies. The last two models also include
estimated first-step residuals to tackle the endogeneity of the state-dependent regressors "à la Rivers-Vuong"; see
the appendix for complete results.
Table 8: Marginal effects / State-dependent model
Ordered probit with 5 outcomes
Ordered probit with 3 outcomes
Probability of a
Probability of a
Probability of a
Probability of an
small increase
decrease
increase
small decrease
observ. prob. = 7.00% observ. prob. = 8.42% observ. prob. = 8.44% observ. prob. = 10.54%
margin. effect
Z-stat margin. effect
Z-stat margin. effect
Z-stat margin. effect
Z-stat
cum_ii_price
-0.79%
-27.78
0.90%
27.86
-1.20%
-28.41
1.41%
28.78
cum_wage
-0.01%
-0.07
0.01%
0.07
0.25%
1.45
-0.30%
-1.45
cum_prod
-0.33%
-9.57
0.37%
9.58
-0.41%
-9.11
0.49%
9.11
cum_sect_price
-0.69%
-18.53
0.79%
18.57
-0.92%
-18.98
1.09%
19.08
Note: The marginal effects are giving the probability change associated with a 1% change in the X variables. They
have been computed using the Rivers-Voung estimates.
ECB
Working Paper Series No 1184
April 2010
51
Table 9: Estimates of a flexible dynamic model
ii_price
ii_price(-1)
ii_price(-2)
ii_price(-3)
remain_cum_iip
wage
wage(-1)
wage(-2)
wage(-3)
remain_cum_wage
prod
prod(-1)
prod(-2)
prod(-3)
remain_cum_prod
sect_price
sect_price(-1)
sect_price(-2)
sect_price(-3)
remain_cum_price
vat_2000
vat_2000_2
Euro_2002
Euro_2002_2
q1
q2
q3
q4
rho=su/(su+sw)
LogL
Ordered probit with 5 outcomes
Ordered probit with 3 outcomes
Simple Probit
Rivers-Vuong Rivers-Vuong and Rivers-Vuong Rivers-Vuong and
method for
Wooldridge for
method for
Wooldridge for
endog. var.
unobs. heterog.
endog. var.
unobs. heterog.
Coeff
Z-stat
Coeff
Z-stat
Coeff
Z-stat
Coeff
Z-stat
Coeff
Z-stat
0.434
49.52
1.100
5.07
1.188
5.32
1.623
5.72
1.737
5.92
-0.069
-5.75 -0.266
-2.51 -0.265
-2.43 -0.361
-2.86 -0.361
-2.77
-0.011
-0.80 -0.056
-1.51 -0.042
-1.10 -0.105
-2.07 -0.092
-1.77
0.020
1.34
0.051
1.80
0.071
2.44
0.060
1.64
0.078
2.06
-0.010
-2.79
0.022
1.15
0.043
2.18
0.049
2.05
0.067
2.65
0.024
3.28
0.170
7.05
0.181
7.31
0.213
5.38
0.231
5.63
0.000
-0.04
0.012
1.08
0.011
1.00
0.001
0.05
0.005
0.25
0.009
1.01
0.018
1.47
0.018
1.41 -0.007
-0.34 -0.002
-0.10
-0.004
-0.41
0.005
0.36
0.004
0.33 -0.054
-2.24 -0.051
-2.01
0.009
2.71
0.046
3.59
0.048
3.53
0.004
0.22
0.015
0.79
0.043
9.32
0.039
0.91
0.035
0.80
0.037
0.55
0.039
0.57
0.006
1.05
0.019
2.41
0.014
1.78
0.025
2.31
0.021
1.83
0.002
0.30
0.021
2.88
0.016
2.11
0.042
3.60
0.037
3.06
-0.009
-1.51 -0.002
-0.26 -0.009
-1.06 -0.010
-0.73 -0.019
-1.32
0.007
3.06
0.039
6.46
0.033
5.00
0.058
6.14
0.052
5.02
0.238
18.11
0.148
10.58
0.163
11.20
0.160
11.18
0.179
11.92
0.022
1.36
0.107
4.66
0.118
4.98
0.103
4.39
0.115
4.76
0.003
0.14
0.102
4.29
0.110
4.46
0.112
4.59
0.124
4.88
-0.011
-0.55
0.103
3.73
0.114
3.98
0.112
3.96
0.126
4.29
-0.006
-1.52
0.055
4.46
0.055
4.17
0.059
4.63
0.063
4.59
0.087
1.26
0.069
0.96
0.078
1.07
0.082
1.11
0.092
1.21
-0.141
-3.45 -0.134
-3.01 -0.152
-3.30 -0.131
-2.91 -0.145
-3.09
0.064
1.24
0.041
0.64
0.047
0.71
0.062
0.97
0.066
1.01
-0.073
-3.35 -0.020
-0.89 -0.017
-0.72 -0.008
-0.33 -0.005
-0.22
-2.315 -95.64 -2.194 -76.48 -2.373 -62.19 -1.389 -53.03 -1.480 -40.47
-1.473 -70.60 -1.348 -52.22 -1.447 -40.79
1.427
54.49
1.535
41.99
1.308
63.61
1.460
56.40
1.551
43.70
2.174
92.91
2.349
82.35
2.487
65.87
0.128
22.76
0.134
22.29
-34,068
-33,632
-32,676
-29,022
-28,086
Note: All the estimated models include industry specific and year dummies. The last two models also include estimated
first-step residuals to tackle the endogeneity of the state-dependent regressors "à la Rivers-Vuong"; see the appendix for
complete results.
52
ECB
Working Paper Series No 1184
April 2010
Table 10: Marginal effects / Flexible state-dependent model
Ordered probit with 5 outcomes
Ordered probit with 3 outcomes
Probability of a
Probability of a
Probability of a
Probability of an
small increase
small decrease
decrease
increase
observ. prob. = 7.00% observ. prob. = 8.42% observ. prob. = 8.44% observ. prob. = 10.54%
marg. effect
Z-stat marg. effect
Z-stat marg. effect
Z-stat marg. effect
Z-stat
ii_price
-1.62%
-5.06
1.90%
5.06
-2.27%
-5.71
2.67%
5.72
ii_price(-1)
0.22%
2.51
-0.26%
-2.51
0.30%
2.86
-0.36%
-2.86
ii_price(-2)
0.04%
1.51
-0.04%
-1.51
0.07%
2.07
-0.08%
-2.07
ii_price(-3)
-0.03%
-1.8
0.03%
1.8
-0.03%
-1.64
0.04%
1.64
remain_cum_iip
-0.05%
-1.15
0.06%
1.15
-0.14%
-2.04
0.16%
2.04
total effect
-1.44%
1.69%
-2.07%
2.43%
wage
-0.41%
-7.03
0.48%
7.03
-0.48%
-5.37
0.57%
5.38
wage(-1)
-0.02%
-1.08
0.02%
1.08
0.00%
-0.05
0.00%
0.05
wage(-2)
-0.03%
-1.47
0.03%
1.47
0.01%
0.34
-0.01%
-0.34
wage(-3)
-0.01%
-0.36
0.01%
0.36
0.07%
2.24
-0.08%
-2.24
-0.45%
-3.59
0.53%
3.59
-0.04%
-0.22
0.04%
0.22
remain_cum_wage
total effect
-0.91%
1.08%
-0.44%
0.52%
prod
-0.04%
-0.91
0.05%
0.91
-0.03%
-0.55
0.04%
0.55
prod(-1)
-0.02%
-2.41
0.02%
2.41
-0.02%
-2.31
0.02%
2.31
prod(-2)
-0.02%
-2.88
0.02%
2.88
-0.03%
-3.6
0.03%
3.59
prod(-3)
0.00%
0.26
0.00%
-0.26
0.01%
0.73
-0.01%
-0.73
remain_cum_prod
-0.25%
-6.44
0.29%
6.44
-0.31%
-6.14
0.37%
6.14
total effect
-0.32%
0.38%
-0.39%
0.46%
sect_price
-0.17%
-10.49
0.20%
10.5
-0.23%
-11.13
0.27%
11.15
sect_price(-1)
-0.08%
-4.65
0.10%
4.65
-0.10%
-4.39
0.12%
4.39
sect_price(-2)
-0.06%
-4.28
0.07%
4.28
-0.08%
-4.58
0.10%
4.58
sect_price(-3)
-0.05%
-3.73
0.06%
3.73
-0.07%
-3.96
0.08%
3.96
remain_cum_price
-0.18%
-4.45
0.22%
4.45
-0.25%
-4.63
0.29%
4.63
total effect
-0.55%
0.64%
-0.72%
0.85%
Note: The marginal effects are giving the probability change associated with a 1% change in the X variables. They
have been computed using the Rivers-Voung estimates.
ECB
Working Paper Series No 1184
April 2010
53
Table 11: Estimates of a model with asymmetries
ii_price
ii_price(-1)
ii_price(-2)
ii_price(-3)
remain_cum_iip
wage
wage(-1)
wage(-2)
wage(-3)
remain_cum_wage
prod
prod(-1)
prod(-2)
prod(-3)
remain_cum_prod
sect_price
sect_price(-1)
sect_price(-2)
sect_price(-3)
remain_cum_price
q1
q2
q3
q4
LogL
Ordered probit with 5 outcomes
Effect of a
Effect of an
decrease in x
increase in x
Coeff
Z-stat Coeff
Z-stat
-0.355
-0.74 1.370
5.87
0.232
1.17 -0.271
-2.29
0.041
0.55 -0.046
-0.66
0.068
0.85 0.085
1.19
0.132
1.95 0.022
0.35
0.988
1.54 0.210
6.21
-0.067
-2.30 0.034
2.90
-0.027
-0.83 0.040
2.46
-0.027
-0.62 0.035
1.17
-0.016
-0.39 0.054
2.75
0.298
2.42 -0.223
-2.00
-0.050
-1.50 0.065
3.24
-0.005
-0.25 0.047
2.91
-0.031
-1.25 0.027
1.33
-0.100
-1.40 0.119
3.14
0.039
1.37 0.204
10.08
0.100
2.42 0.077
1.66
-0.037
-0.77 0.221
5.15
0.025
0.35 0.167
2.59
0.019
1.01 0.058
1.88
-1.971
-21.72
-1.117
-12.46
1.697
18.89
2.585
28.46
-33,543
Ordered probit with 3 outcomes
Effect of a
Effect of an
decrease in x
increase in x
Coeff
Z-stat Coeff
Z-stat
0.282
0.38 1.530
4.33
0.091
0.34 -0.225
-1.46
-0.001
-0.01 -0.025
-0.26
0.014
0.12 0.135
1.45
0.182
1.39 0.030
0.33
2.432
2.66 0.400
4.30
-0.054
-1.07 0.006
0.23
-0.071
-1.20 0.052
1.46
-0.066
-1.00 0.039
0.76
-0.240
-1.87 0.017
0.71
0.193
1.02 -0.116
-0.49
-0.015
-0.28 0.070
2.00
0.018
0.54 0.071
2.56
-0.009
-0.27 0.022
0.66
-0.061
-0.58 0.119
2.12
0.047
1.61 0.223
10.54
0.070
1.63 0.161
3.20
-0.003
-0.07 0.226
5.07
0.058
0.90 0.158
2.47
0.004
0.21 0.096
2.85
-1.142
-11.89
1.679
17.45
-28,954
Note: The estimates presented in this table are those obtained using Rivers-Vuong approach.
54
ECB
Working Paper Series No 1184
April 2010
Table 12: Marginal effects in a model with asymmetries
ii_price
ii_price(-1)
ii_price(-2)
ii_price(-3)
remain_cum_iip
total effect
wage
wage(-1)
wage(-2)
wage(-3)
remain_cum_wage
total effect
prod
prod(-1)
prod(-2)
prod(-3)
remain_cum_prod
total effect
sect_price
sect_price(-1)
sect_price(-2)
sect_price(-3)
remain_cum_price
total effect
Ordered probit with 5 outcomes
Ordered probit with 3 outcomes
Effect of a
Effect of an
Effect of a
Effect of an
decrease in x
increase in x
decrease in x
increase in x
on the prob. of a
on the prob. of a
on the prob. of a
on the prob. of a
small
small
price decrease
price increase
price decrease
price increase
obs. prob. = 8.42%
obs. prob. = 8.42% obs. prob. = 10.54% obs. prob. = 10.54%
marg. eff.
Z-stat marg. eff.
Z-stat marg. eff.
Z-stat marg. eff.
Z-stat
-0.38%
-0.74
4.09%
5.86
0.30%
0.38
4.46%
4.33
0.16%
1.17
-0.48%
-2.29
0.06%
0.34 -0.40%
-1.46
0.02%
0.55
-0.07%
-0.66
0.00%
-0.01 -0.04%
-0.26
0.03%
0.85
0.10%
1.19
0.01%
0.12
0.16%
1.45
0.27%
1.95
0.12%
0.35
0.36%
1.39
0.17%
0.33
0.11%
3.76%
0.73%
4.36%
0.20%
1.54
0.64%
6.20
0.90%
2.66
1.24%
4.30
-0.01%
-2.30
0.08%
2.90 -0.02%
-1.07
0.01%
0.23
0.00%
-0.83
0.08%
2.46 -0.02%
-1.20
0.10%
1.46
0.00%
-0.62
0.06%
1.17 -0.02%
-1.00
0.07%
0.76
-0.01%
-0.39
0.64%
2.75 -0.09%
-1.87
0.20%
0.71
0.17%
1.50%
0.77%
1.63%
1.36%
2.42
-1.50%
-2.00
0.73%
1.02 -0.65%
-0.49
-0.18%
-1.50
0.34%
3.24 -0.05%
-0.28
0.31%
2.00
-0.02%
-0.25
0.21%
2.91
0.04%
0.54
0.27%
2.56
-0.08%
-1.25
0.11%
1.33 -0.02%
-0.27
0.07%
0.66
-0.41%
-1.40
1.46%
3.14 -0.20%
-0.58
1.21%
2.12
0.67%
0.62%
0.50%
1.21%
0.04%
1.37
0.54%
10.01
0.06%
1.61
0.74%
10.52
0.09%
2.41
0.15%
1.66
0.08%
1.63
0.39%
3.20
-0.03%
-0.77
0.35%
5.14
0.00%
-0.07
0.44%
5.06
0.02%
0.35
0.23%
2.59
0.05%
0.90
0.27%
2.47
0.03%
1.01
0.33%
1.88
0.01%
0.21
0.69%
2.85
0.15%
1.60%
0.19%
2.53%
ECB
Working Paper Series No 1184
April 2010
55
Wo r k i n g Pa p e r S e r i e s
N o 1 1 1 8 / n ov e m b e r 2 0 0 9
Discretionary
Fiscal Policies
over the Cycle
New Evidence
based on the ESCB
Disaggregated Approach
by Luca Agnello
and Jacopo Cimadomo