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Price, sales, and the business cycle: Microeconomic evidence

Author

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  • Borraz, Fernando
  • Livan, Giacomo
  • Rodríguez-Martínez, Anahí
  • Picardo, Pablo

Abstract

This paper uses a rich weekly price database from the largest supermarket in Uruguay to analyze the relationship among prices, micro-level sales, and business cycle conditions. On average, 7% of products were on sale each month, and we show a positive and statistically significant but small relationship between sales and unemployment at the aggregate level, controlling for product and time effects. For each product category, there is a high and positive statistically significant association for these variables. Also, for some categories like food products, alcoholic drinks, beverages, and fruits and vegetables, we found a large, negative, and statistically significant relationship between the probability of being on sale and employment. The mechanism we tested is the following: As the economy worsens and unemployment rises (and/or employment falls), the supermarket uses sales to adjust prices while keeping reference prices fixed. Our results indicate that sales do not alleviate much of the price rigidity in economic recessions.

Suggested Citation

  • Borraz, Fernando & Livan, Giacomo & Rodríguez-Martínez, Anahí & Picardo, Pablo, 2022. "Price, sales, and the business cycle: Microeconomic evidence," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(1).
    • Handle: RePEc:eee:lajcba:v:3:y:2022:i:1:s2666143822000035
    DOI: 10.1016/j.latcb.2022.100048
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    More about this item

    Keywords

    Price rigidity; Sales; Unemployment; Time series principal component analysis;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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