Some Preliminary Evidence of Price Setting Behaviour from the Industrial Estates of Khyber Pakhtunkhwa

Abstract

Price setting behaviour is a crucial issue for the knowledge of monetary policy transmission mechanism. The objective of the study is to analyze the relationship between firm’s characteristics and the price setting behaviour of firms, using survey-based data. The survey is conducted in the year 2017 in four major industrial estates of Khyber Pakhtunkhwa, namely, Hayatabad, Nowshera, Gadoon and Hattar Industrial Estates. A sample of 342 firms is selected through stratified random sampling and respondents are the managers of the firms. According to results the price elasticity of demand will be inelastic and the number of time to change price decreases in case of less competitors. If the firm is engaged in a contract, then there are more chances that the firms have only regular customers and imperfect competitive market structure. Firms which are involved in input price contracts, they are also involved in output price contracts, so nominal wage rigidity leads to output price rigidity. This paper find that traditional channel of monetary policy is weak as degree of price rigidity is low. Therefore, it is important for monetary policy of Pakistan to focus on other channels of monetary transmission mechanism.