Do Menu Costs Make Prices Sticky?

This paper studies whether menu costs are large enough to explain why …rms are soreluctant to change their prices. Without actually estimating menu costs, we can infertheir relevance for …firrms' price setting decisions from observed pricing behavior arounda currency changeover. At a currency changeover, …rms have to reprint their pricetags (menus) independently of whether or not they want to change prices. And if thisis costly, …firms' price setting behavior is altered in the months around the changeover.Using data from the Euro-changeover, the paper estimates that menu costs can explain astickiness of around 30 days which is considerably less than the 7 to 24-month stickinesswe observe in retailing and in the service sector. The reluctance of …rms to adjust pricesmore frequently appears to be caused by factors other than menu costs.....