How do firms adjust their prices in Turkey? Micro-level evidence

This article investigates the pricing behaviour of Turkish firms over the period 1988-2006 on the basis of firm-level micro data. The duration of prices is found to be 3.9 months on average. There is no clear heterogeneity across main groupings in the frequency of price changes, but more dependence on imported goods reduces price stickiness. Price decreases are less frequent than price increases, indicating downward rigidity in prices. There is evidence in favour of both time and state-dependent price setting behaviours. Further, there is a low degree of synchronization of price changes across firms, whereas price increases tend to be more synchronized than price decreases. Ordered probit models show that price adjustments depend on the type of the shock: the pass-through of a change in the cost is faster than changing demand. Besides, estimated probabilities of price adjustments with 5-years rolling windows reveal that inflation targeting has succeeded in bringing down the probability of price increases, whereas downward price rigidity has not weakened yet.