The Price of War: Causal Evidence on Firms' Price Setting in Response to the War in Ukraine

Abstract

This paper studies the causal effects of the Russian invasion of Ukraine in spring 2022 on firms' price-setting behavior in Switzerland. By combining qualitative survey evidence with microdata underlying the consumer and producer price indices, I find that the war increased the frequency and synchronization of price changes as well as the age of adjusted prices. This evidence supports state dependence in price setting. Diminished concerns about damaging customer relationships through price increases in the face of cost-push shocks have contributed to greater price flexibility. In contrast, sticky information, fixed contracts, and business hierarchy delayed price adjustments.