Firms’ Pass-Through Dynamics: A Survey Approach

This paper uses a new survey approach to empirically characterize firm-level passthrough dynamics and explores them in a price-setting model. We directly elicit price pass-through of cost shocks in the field and survey experiments. We find gradual pass-through due to infrequent adjustments (nominal rigidities) and high costs of deviating from competitors (strategic complementarities), especially for transitory shocks. The experiments provide causal evidence supporting non-constant demand elasticities: firms raise prices incrementally to a permanent aggregate shock, and samesize idiosyncratic shocks exhibit lower pass-through. We quantify nominal rigidities and strategic complementarities in a general equilibrium price-setting model, finding both play substantial roles.