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Inflation and Price Adjustment: An Analysis of Microdata

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  • Benjamin Eden

    (University of Haifa)

Abstract

use large datasets on prices by products and stores from recent inflationary periods in Israel to compare simple menu cost models with simple uncertain and sequential trade (UST) models. The main empirical findings are (a) price erosion due to inflation explains only a tiny fraction of the variation in nonzero nominal price changes, (b) stores whose last nominal price change was relatively low are likely to choose a nominal price change that is relatively high, (c) stores that reduce their nominal price charge a lower price relative to stores that increase their nominal price, and (d) relative price variability is not related to inflation. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.2000.0126
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 4 (2001)
Issue (Month): 3 (July)
Pages: 607-636

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Handle: RePEc:red:issued:v:4:y:2001:i:3:p:607-636

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Keywords: inflation; price adjustment;

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References

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  1. Reinsdorf, Marshall, 1994. "New Evidence on the Relation between Inflation and Price Dispersion," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 720-31, June.
  2. Stigler, George J & Kindahl, James K, 1973. "Industrial Prices, as Administered by Dr. Means," American Economic Review, American Economic Association, American Economic Association, vol. 63(4), pages 717-21, September.
  3. Robert E. Lucas, Jr. & Michael Woodford, 1993. "Real Effects of Monetary Shocks in an Economy with Sequential Purchases," NBER Working Papers 4250, National Bureau of Economic Research, Inc.
  4. Michael Woodford, 1996. "Loan Commitments and Optimal Monetary Policy," NBER Working Papers 5660, National Bureau of Economic Research, Inc.
  5. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 637-58, September.
  6. Tsiddon, Daniel, 1993. "The (Mis)Behaviour of the Aggregate Price Level," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(4), pages 889-902, October.
  7. Benjamin Eden, 2001. "Inflation and Price Adjustment: An Analysis of Microdata," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 607-636, July.
  8. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  9. Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 17-26, January.
  10. Sheshinski, Eytan & Weiss, Yoram, 1983. "Optimum Pricing Policy under Stochastic Inflation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 50(3), pages 513-29, July.
  11. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(2), pages 655-690, May.
  12. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, Elsevier, vol. 31(3), pages 255-274, April.
  13. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  15. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(2), pages 349-89, April.
  16. Eden, Benjamin, 1994. "The Adjustment of Prices to Monetary Shocks When Trade Is Uncertain and Sequential," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(3), pages 493-509, June.
  17. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  18. Williamson, Stephen D., 1996. "Sequential markets and the suboptimality of the Friedman rule," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(3), pages 549-572, June.
  19. Cukierman, Alex, 1983. "Relative price variability and inflation: A survey and further results," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 19(1), pages 103-157, January.
  20. Bental, Benjamin & Eden, Bemjamin, 1996. "Money and inventories in an economy with uncertain and sequential trade," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(3), pages 445-459, June.
  21. Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(2), pages 275-308, April.
  22. Weiss, Y., 1992. "Inflation and price Adjustment : A Susvey of Findings from Micro-Data," Papers, Tel Aviv - the Sackler Institute of Economic Studies 3-92, Tel Aviv - the Sackler Institute of Economic Studies.
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