What Causes Large Price Changes on a Post War Country as the Republic of Kosovo? From the Financial Manager's Perspective

In this paper, we investigate what causes large price changes on a post war country as the Republic of Kosovo. Based on the perceptions of financial managers and using the principal component and regression analyses based on data obtained from 11612 questionnaires with financial managers in different sector in Kosovo. The study finds that price setting rule based on market level, the increase in price are affected from labor costs and price decrease are affected from financial costs and labor costs. Moreover, the price flexibility effect from physical elasticity, and the probability or the frequency of price changes is affected VAT rate changes. The theories explaining price stickiness is explicit contracts, the main reason for price rigidity is quality. The result implies that the change in prices may be impacted by different factors which varies according to their influence. There is no significant relationship between price increase and the impact of factors that influence in change in prices. We conclude that financial managers should adopt a more coordinated type of price setting and analyzing each type of factor more carefully this will contribute to have a coordinate relation between changes in price and factors that effect on it.


INTRODUCTION Background
Researches in the price change level widely agree that is a weighted average of domestic prices of resources available to the economy for end use, i.e. prices of private consumption, of public consumption expenditure and of investments [1].
Benigno [2] defined that raising prices in an environment with spooked consumers, uneasy stock markets, and competitors waiting to pounce on mistakes has kept many pricing managers from getting a good night's rest. Christiano et al. [3] said the ability to raise prices is a critical element to surviving and even thriving in economy. Shocks and Friedman [4,5] argue that has there been more pressure to find incremental margin gains, given stagnant growth, and, increasingly, inflationary pressures affecting input costs. Goodfriend [6] reveal that their single most feared tactic in today's economic environment is the price increase. Ohanian et al. [7] empathies that understanding the causes and consequences of nominal and real rigidities in an economy is essential for studying business cycles or assessing the impact of macroeconomic policies on that economy. Taylor John [8] said that in state-dependent pricing models, enterprises choose when to change their prices subject to "menu costs". Daniel [9] notice that when enterprises' costs are fixed regardless of changes in prices (for example, the cost of printing a new schedule of prices), the timing and magnitude of enterprises' price adjustments depend on the state of the economy. There is copious evidence of the relationship between price changes and trading volume from developed markets, which provides an insight into the structure of their financial markets.
Crouch [10] said that the price-volume relationship depends on the rate of information flow to the market, how the information is disseminated, and the extent to which market prices convey the information, the size of the market and the existence of short sales constraints. Geweke [11] noticed that relationship between price changes and trading volume is that absolute price changes and price changes per se are positively correlated with trading volume, though it is recognized that this relationship is generally weaker for the latter. Gabaix [12] said that one of the best-known statistical regularities of financial time series is the fact that the empirical distribution of asset price changes is fat tailed, i.e. there is a higher probability of extreme events than in a distribution.
Previous studies related to price changes in have not been made this is the first of its kind [13,14]. But in other countries there have been researches that have been mainly focused on the impact of changes in the prices of rice and fuel, on the capital market, the trading volume ratio, high-frequency trading and extreme price movements, liquidity fluctuations [15][16][17][18][19]. As a landlocked territory with relatively weak logistics infrastructure and a small domestic market, the key challenge for the Kosovo economy is to achieve higher private-sector and to create a balance on price. As financial managers prepare financial statements, monitor financial details, review financial reports, analyze market trends price, they are the best sample monster to investigate the changes in price in Kosovo. Further, price changes have been dealt with in many studies using different models and methods of analysis, but what causes changes in price from a financial management perspective has gained little attention.
The purpose of this paper is to advance understanding of what cause changes in price, along with the gradually development of market in Kosovo, the changes in price become the pillar of the national economy industry. Understanding how different factors can influence on price, is the key to finding an optimum price for your products or services. This paper includes factors that help to researching market, analyze data and consider how those factors impact on changes in the prices on a post war country like Kosovo. These factors market represent the guide choice of pricing strategy to counter any unfavorable conditions and to discover the perception of financial managers about changes in price. These factors market represent the guide choice of pricing strategy to counter any unfavorable conditions and to discover the perception of financial managers about changes in price. The remaining parts of the paper are organized as follows: First, we provide an overview about the causes of price increases and the consumers price index on Republic of Kosovo. Following, we present the perceptions of financial managers about changes in price, and compare the impact of each factor that influence the movement of prices in the market and determine their effects. Finally, conclusions and recommendations and the direction for future research are provided.

The causes of price increases
Prices of most of the goods and services at the disposal of the economy, i.e. of consumption were determined by economic activities and the approach of spending at current and constant prices. a) Prices of consumption: Monthly inflation measured by the harmonized index of consumer prices was -0.2% in May 2019, while the consumer price index dropped to an average of -0.2% in May 2019, compared to a previous month. For part of the consumer goods, excess demand was not reflected in prices, owing to the rationing and price fixing policy applied by the Government and from firms that depend on the needs of consumers. Owing to the link between the consumers' price index and wages, this policy had a moderating influence on the general price level of the economy b) Prices of public consumption expenditure: Prices of public consumption are not reflected in market prices of goods and services. As a substitute for the estimated increase in the price of public consumption, these price changes have been measured by the changes in the average salaries of civil servants c) Prices of equipment: The prices of most of the imported equipment are world market prices. Their value at home is determined in accordance with the official rate of exchange, as such equipment is allocated to applicants by the Government. The price movements of locally produced equipment vary in accordance with the price of imported equipment, owing to their interchangeability.

The consumers' price index
In the absence of a more reliable yardstick, the consumers' price index serves as an indicator of the changes in the price trends for consumer goods. The limitations of the consumers' price index as a yardstick of consumer prices have been more fully explained in the harmonized consumer index May 2019. a) Changes in the index: The overall harmonized index of consumer prices is higher by 3  the Government subsidies paid for consumer goods and by the timing of the distribution of food rations at controlled prices. This Government policy should be interpreted in the light of the existing link between the consumers' price index and the level of the cost of living allowance paid to wage and salary earners.

b) Changes in the main index components:
To analyze the changes in the prices of consumer goods according to the source of the product, a new classification of the index items has been prepared. These items have been classified by groups that differ from those of the consumers' price index. The main difference is in personal services and in direct imports which have been excluded from the different branches. The following comparison enumerates the price changes of commodities by source ( Table 2).  All items 1.1 3.4 1000.0 1 Including beef and poultry meat. 2 Including furniture, metal, and chemical products, Pharmaceuticals, plastic goods, electric equipment, production of leather and leather products, manufacture of paper and paper products. 3 Mainly ambulance services, hospital, telephone and telefax services, recreational and cultural services.
Source: Kosovo Agency of Statistics.

Hypotheses
For many years economy of Republic of Kosovo is facing significant problem of overall increasing general price level. Miečinskienė [20] said that the value of monetary unit falls and decreases its purchasing power -so called inflation appears. To test the first hypothesis, we took four most important factors. The first factor is Inters rate which is essentially a rental or leasing charge to the borrower for the use of an asset. The second factor is gross value added which is the measure of the value of goods and services produced in an area, industry or sector of an economy. Also is important because it is used in the calculation of gross domestic product (GDP), which is a key indicator of the state of a nation's total economy. The third factor is consumer price inflation (CPI) is the overall general upward price movement of goods and services in an economy. Examines the weighted average of prices of a basket of consumer goods and services. The fourth factor is gross disposable household income (GDHI) is the amount of money that households have available for spending and saving after income taxes have been accounted for. As each of those factors has their impact not only the area of prices, but directly and indirectly it touches the various areas of economic and social life, causing many consequences for country's economic development we choose them as the most significant factors that help us to know their influences on changes in prices. Based on this we expect that different factors to have different influence in change in prices on the Republic of Kosovo.
We therefore hypothesize that:

Hypothesis 1: Different factors have different influence in change in prices on the Republic of Kosovo
A price change is the difference in trading prices from one period to the next, by this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Or if more people wanted to sell a stock than buy it, the price would fall. One of the most basic reasons of companies in Kosovo raise prices on their products and services is to adjust to increased business costs. However, companies often weigh both internal and external factors when deciding to raise prices. Therefore, we used the same factors as for hypotheses one to see if exist relationship between price increase and the impact of factors that influence in change in prices. We asked the respondents to indicate their degree of agreement with each factor, choosing from among four categories: unimportant (1), of minor importance (2), important (3) and very important (4). Table 5 present the result assigned by financial managers.
We therefore hypothesize that: Hypothesis 2: There is no relationship between price increase and the impact of factors that influence in change in prices.

METHODOLOGY
Perritt, Jr noted Kosovo is one of the poorest countries in Europe. About 45 per cent of the population of Kosovo is poor, with another 18 per cent vulnerable to poverty. Sklias and Roukanas highlighted that as much as 13 per cent of population is extremely poor. According to a study [13]  The research was generally focused on financial managers from: Primary sector: Extraction of raw materialsmining, fishing and agriculture.
Secondary/manufacturing sector: Concerned with producing finished goods, e.g. factories making toys, cars, food, and clothes.
Service/'tertiary' sector: Concerned with offering intangible goods and services to consumers.
The research study was carried on all municipalities in Kosovo such based on the lists provided by the Kosovo Investment and Enterprise Support Agency (KIESA). Table 1 summarizes the sampling procedure and the sample size.
We used SPSS statistical program version 20 for all statistical computations. Structured questionnaire was used for data collection in the location of the financial managers. The questionnaire was pre-tested with one hundred financial managers. The participants were asked to comment on the format of the questionnaire including the aspects like wording, length, and the order of the questions. After, the feedback obtained was incorporate to improve the questionnaire. On average, each questionnaire last about 20 minutes.
The survey set out with the explore of factors that effect on price setting rules. The factors are adapted from [21]. We set several items to assess that which of those factors affect more on price setting. Price setting was measured on a simple scale system "important" or "very important". The result is representing in Table 5.
According to Verhelst and Poel the price increases and price decreases do not occur with the same (conditional) probability. [  Result from the financial managers that estimate each factor as important in price-setting.  [23] Respondents were asked to assign scores between 4 (very important) and 1 (completely unimportant) to cost factors (labor costs, raw material costs and financial costs) and market conditions (demand and competitors prices) according to their importance for price adjustment. The question was posed separately for price increases and decreases. The results are presented in Tables 6 and 7 respectively, which contain the scores for every factor.
To summarize the main results on the factors underlying with price flexibility. We asked financial managers to choosing from among four categories for each factor: unimportant (1), of minor importance (2), important (3) and very important (4). The factors are adapted from [24]. All these findings are summarized in Table 8.
To summarizes the main results on the factors affecting the frequency of price changes we asked financial managers to evaluate each of factors with simple scale system 1=Yes, 2=No. The factors are adapted from [25]. These results were obtained considering both measures of the frequency of price changes and measures of the frequency of price changes conditional on the duration of price spells. All these findings are summarized in Table 9.
We asked the financial managers a question along the following lines: "If there are reasons for changing the price of your main product, which of the following factors may well prevent an immediate price adjustment?" The list following this question offers the ten above mentioned theories, expressed in simple terms, as possible explanations. The theories are adapted from previous studies [21,26]. The respondents could indicate their degree of agreement with each theory, choosing from among four categories: unimportant (1), of minor importance (2), important (3) and very important (4). Columns 1 to 9 in Table 10 present the result assigned by financial managers for the various theories.
There are numerous reasons why prices are not or only slightly changed during a certain time interval. To summarize reasons for price rigidity we asked financial managers to choosing from among four categories for each items with (1) unimportant, (2) minor importance, (3) important and (4) very important. The factors are adapt from [22]. All these findings are summarized in Table 11.       Exploration factor analysis using the main component analysis with a varimax rotation was applied to the market price scale for the purpose of determining which factors have a greater impact on the market price movement. Articles to analyze the factors that influence the price movement in the market have been adjusted by the research conducted by Abu Dhabi Securities Exchange (2017).
In this analysis, all Eigen value factors were extracted. To test for the suitability of factor-scale analysis, the Kaiser-Meyer-Olkin measure of sample sampling (KMO-MSA) was conducted for impact measurements of factors affecting price movement in the market in the accepted region greater than 0.5 [27]. In addition, Alpha of Cronbach was used to measure the internal consistency of the measurement scale of continuous improvement of rural management. Alpha Cronbach's results and factor analysis are presented in Table 12.
In order to test the first hypothesis, the dependent variable which is influence in change in prices and the independent variables are different factors that effect on it. The factors are adapted from [28]. The reasons why those factors are chosen are following. Interest rate (IR) is bound to be the factor affecting price fluctuations. For the demand factors, the population densit y (PD) is strongly correlated with the demands of housing purchasing. Gross value added (GVA) is an objective indicator reflecting citizen's payment capacity. Similarly, the average disposable income (GDHI) determines the purchasing ability [29]. We asked the respondents to indicate their degree of agreement with each factor, choosing from among four categories: unimportant (1), of minor importance (2), important (3) and very important (4). Table 13 present the result assigned by financial managers. The dependent variable is change in prices, were adapted from [30]. The influence on change in prices was measured on a simple scale system 1=Yes, 2=No.
Reference category: Influence in change in price.

Dependent variable: Changes in price.
To test the second hypothesis if exist relationship between price increase and the impact of factors that influence in change in prices. We used the same factors as the first hypothesis. We used the same factors as the first hypothesis.

Dependent variable: Price increase
As dependent variable is price increase, were adopted from [31,32]. The existence of relation on change in prices is measured on a simple scale system 1=Yes, 2=No. We used linear regression to measure how a dependent variable anticipates the independent variable, the results of the regression models are indicated in Tables  13 and 14.

Hypothesis 2:
There is no relationship between price increase and the impact of factors that influence in change in prices

Respondents' profile
The study revealed that (87.7%) of the respondents were male, while only 12.3% were female. We have observed that males could readily be available for taking care of finance and had a wide knowledge about changes in price. The low percentage of the female participating in agribusiness activities could be attributed to the fact that being females in the study area usually involved in several other professions outside finance like doctor, engineers, teachers etc. The findings reveal the majority of farmers are aged between 26-50 years (40%), we can say that they are in their productive age, where their experience helps on managing the finance. Most of financial managers farms (39.6%) had at least Collage/Assoc. degree, we can have noted that this level of education influences financial decisions, reporting, analyzing and interpretation of financial data. (34.7%) of our respondents work on private enterprise which means that financial managers and business owners are free to make economic decisions within governmental regulations. (34.9%) of financial managers have financial experience more than 20 years, that is a very important    factor to help to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services Table 15.

Financial managers' perception for changes in price
Price setting rule: Table 5 summarizes the results of the surveys shows about price setting rule(1.11 ) that based (1.12) on regulatory agency, (1.11) market level, (1.10) direct cost-plus variable markup, (1.08) direct cost-plus fixed mark up, (1.13) consumer set, (1.17) competitor prices.

The importance of different factors driving price increases:
The results in Table 6 showed that prices increase based from (1.05) labor costs, (1.40) financial costs, (1.04) demand, (1.10) costs of raw materials, (1.10) competitors' price.

The importance of different factors driving price decreases:
The results in Table 7 showed that prices decrease based from (1.04) labor costs, (1.35) financial costs, (1.04) demand, (1.11) from costs of raw materials and competitors' price.
Factors underlying price flexibility:

Factors affecting the probability or the frequency of price changes:
The results in Table 9 showed factors affecting the probability or the frequency of price changes which are: (1.11) seasonality, (1.11) aggregate inflation, (1.11) sectoral or product-specific inflation, (1.09) VAT rate changes, (1.10) type of outlet, (1.11) attractive prices, (1.11) euro cash changeover.

Ranking of reasons for price rigidity
The results in Table 11

RESULTS OF FACTOR ANALYSIS AND REGRESSION
Four types of factors that together explained the impact on the movement of prices on the market are shown in The interest rate with a load factor has a contribution of 1,000 to the price movement in the market, the demand level with a load factor has a contribution of 1,000 to the market price movement, natural disasters with a load factor has a contribution of 1,000 to the movement than the price on the market. Most other factors did not make an adequate contribution because their factor loads were less than 0.5.
The regression analyses from Table 13 shows that different factors have different influence in change in prices which means depend of the factor and their impact. The result implies that the change in prices may be impacted by different factors which varies according to their influence. For instance, gross value added and price inflation have highest average influence in change in prices, followed by Interest Rate and Gross disposable household income. Table 14 shows that influence factors like interest rate, gross value added, consumer price inflation, gross disposable household income has a positive impact on price increase. The result implies that price increase differs from the way the influence factors effect on them. For example, price increase affect more from consumer price inflation, followed by interest rate, gross value added, gross disposable household income.

DISCUSSION
The results of this study showed that price setting rule that based are based on market level. This may result in strategy in framework for evaluating and optimizing performance of a unit. Depending on a business the unit could be a 'market', a customer segment or a product.
Moreover, the results showed that the most important factor that impact price increases are labor costs, which means that all wages paid to employees, as well as the cost of employee benefits and  payroll taxes paid by an employer has a significant effect on price increase. But the most important factor that impact price decrease are financial costs and labor costs which means that the sum of all costs of finances, interest, and other charges involved in the borrowing of money to build or purchase assets decrease the price.
Moreover, the results showed that physical elasticity effect on price flexibility that ensures is a measure of responsiveness of the quantity demanded to a percentage change in the price of the item.
There are other elasticities in economics and none of them is a physical concept either. The most important factor that affects the probability or the frequency of price changes is VAT rate changes. As the value added tax is a general, assessed on the value added to goods and services. Which means that goods from Kosovo, which are sold for export or services and which are sold to customers abroad are normally not subject to VAT. Conversely the good that are imported in EU are taxed to keep the system fair for producers.
The importance of theories explaining price stickiness is explicit contracts which mean that firms have contractual arrangements with their customers, which may be in written form or orally agreed and in which they guarantee to offer a certain product at a specific price. An explanation why firms engage in such agreements is that it is in their interest to build up long-run customer relationships in order to stabilize their future sales. The main reason for price rigidity is quality where the price of a good does not change immediately or readily to the new market-clearing price when there are shifts in the demand and supply curve.
We also compared the impact of factors that effect on price on change in prices and the relation of these factors with change in prices. The result implies that the change in prices may be impacted by different factors which vary according to their influence. Also, it showed that there is no significant relationship between price increase and the impact of factors that influence in change in prices.

CONCLUSIONS AND RECOMMENDATIONS
The objective of this research is to discover that what causes large price changes on a post war country as the Republic of Kosovo. The results showed that price setting rule that based are based on market level. Most important factor that impact on price increases are labor costs, this factor has an significant role because when a Kosovo manufacturer wants to create or to sell goods, they should takes in account the costs of labor, into direct and indirect (overhead) costs, and is very important for their incomes also can be shifted directly toward the consumer. If demand for a product declines, or if competition forces the business to cut prices, the company must reduce the cost of labor to remain profitable. Since financial costs is the cost and interest and other charges involved in the borrowing of money to build or purchase assets and the cost of labor is the sum of all wages paid to employees, as well as the cost of employee benefits and payroll taxes paid by an employer both those two factors have an important affected on price decrease.
Furthermore, the flexibility in price depends from physical elasticity, and price changes are affected from VAT rate changes. The theories that explaining price stickiness is explicit contracts, the reason for price rigidity is quality. Moreover, the change in prices may be impacted by different factors which vary according to their influence. For instance, gross value added and price inflation have highest average influence in change in prices, followed by interest rate and gross disposable household income.
The price increase differs from the way the influence factors effect on them. For example, price increase affect more from consumer price inflation, followed by interest rate, gross value added, gross disposable household income.

LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH
Whilst this study provides an important insight into the study of causes of price changes on a post war country as the Republic of Kosovo, there are some limitations that have to be taken into consideration. One of them is the limited number of items used to make functional the impact of factors on price changes, while can be developed other research with others factors that related to changes in price. The next survey should look in more detail changes in price including articles on cost product, utility and demand, extent of competition in the market, government and legal regulations, pricing objectives, marketing methods. This is expected to increase a broader understanding of variables affecting price changes as well as a subsequent transition phase such as Kosovo and can be used as a basis for a more complete understanding of factors affecting change in price and serve as a guide to the factors that have a major impact on price changes.