Advanced Search
MyIDEAS: Login to save this article or follow this journal

Five Facts about Prices: A Reevaluation of Menu Cost Models

Contents:

Author Info

  • Emi Nakamura

    (Columbia University, NBER, CEPR)

  • Jón Steinsson

    (Columbia University, NBER, CEPR)

Abstract

We establish five facts about prices in the U.S. economy: (1) For consumer prices, the median frequency of nonsale price change is roughly half of what it is including sales (9-12% per month versus 19-20% per month for identical items; 11-13% per month versus 21-22% per month including product substitutions). The median frequency of price change for finished-goods producer prices is comparable to that of consumer prices excluding sales. (2) One-third of nonsale price changes are price decreases. (3) The frequency of price increases covaries strongly with inflation, whereas the frequency of price decreases and the size of price increases and price decreases do not. (4) The frequency of price change is highly seasonal: it is highest in the first quarter and then declines. (5) We find no evidence of upward-sloping hazard functions of price changes for individual products. We show that the first, second, and third facts are consistent with a benchmark menu-cost model, whereas the fourth and fifth facts are not. (c) 2008 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.2008.123.4.1415
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 123 (2008)
Issue (Month): 4 (November)
Pages: 1415-1464

as in new window
Handle: RePEc:tpr:qjecon:v:123:y:2008:i:4:p:1415-1464

Contact details of provider:
Web page: http://mitpress.mit.edu/journals/

Order Information:
Web: http://mitpress.mit.edu/journal-home.tcl?issn=00335533

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jonathan L. Willis, 2006. "Magazine prices revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(3), pages 337-344.
  2. Emi Nakamura & Jón Steinsson, 2008. "Monetary Non-Neutrality in a Multi-Sector Menu Cost Model," NBER Working Papers 14001, National Bureau of Economic Research, Inc.
  3. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  4. Mikhail Golosov & Robert E. Lucas, 2003. "Menu Costs and Phillips Curves," NBER Working Papers 10187, National Bureau of Economic Research, Inc.
  5. S. Fabiani & M. Druant & I. Hernando & C. Kwapil & B. Landau & C. Loupias & Fernando Martins & T. Mathä & R. Sabbatini & H. Stahl & A. Stokman, 2005. "The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence," Working Papers w200510, Banco de Portugal, Economics and Research Department.
  6. Giovanni Olivei & Silvana Tenreyro, 2007. "The Timing of Monetary Policy Shocks," American Economic Review, American Economic Association, vol. 97(3), pages 636-663, June.
  7. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
  8. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  9. Anil K Kashyap, 1994. "Sticky Prices: New Evidence from Retail Catalogs," NBER Working Papers 4855, National Bureau of Economic Research, Inc.
  10. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  11. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  12. Pashigian, B Peter, 1988. "Demand Uncertainty and Sales: A Study of Fashion and Markdown Pricin g," American Economic Review, American Economic Association, vol. 78(5), pages 936-53, December.
  13. Philip Vermeulen & Daniel Dias & Maarten Dossche & Erwan Gautier & I. Hernando & R. Sabbatini & H. Stahl, 2007. "Price setting in the euro area: Some stylised facts from Individual Producer Price Data," Working Papers w200705, Banco de Portugal, Economics and Research Department.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  15. Ellingsen, Tore & Friberg, Richard & Hassler, John, 2006. "Menu Costs and Asymmetric Price Adjustment," CEPR Discussion Papers 5749, C.E.P.R. Discussion Papers.
  16. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
  17. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  18. Bart Hobijn & Andrea Tanbalotti & Federico Ravenna, 2005. "Menu Costs at Work: Restaurant Prices and the Introduction of the Euro," 2005 Meeting Papers 659, Society for Economic Dynamics.
  19. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  20. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  21. Jeffrey R. Campbell & Benjamin Eden, 2005. "Rigid prices: evidence from U.S. scanner data," Working Paper Series WP-05-08, Federal Reserve Bank of Chicago.
  22. Midrigan, Virgiliu, 2006. "Menu costs, multi-product firms, and aggregate fluctuations," CFS Working Paper Series 2007/13, Center for Financial Studies (CFS).
  23. Etienne Gagnon, 2006. "Price Setting during Low and High Inflation: Evidence from Mexico," 2006 Meeting Papers 300, Society for Economic Dynamics.
  24. repec:nbr:nberre:0126 is not listed on IDEAS
  25. George J. Stigler & James K. Kindahl, 1970. "The Behavior of Industiral Prices," NBER Books, National Bureau of Economic Research, Inc, number stig70-1, May.
  26. Fougère, Denis & Le Bihan, Hervé & Sevestre, Patrick, 2005. "Heterogeneity in consumer price stickiness: a microeconometric investigation," Working Paper Series 0536, European Central Bank.
  27. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Food Marketing Policy Center Research Reports 037, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  28. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
  29. Carlton, Dennis W, 1979. "Contracts, Price Rigidity, and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1034-62, October.
  30. Dhyne, Emmanuel & Álvarez, Luis J. & Le Bihan, Hervé & Veronese, Giovanni & Dias, Daniel & Hoffmann, Johannes & Jonker, Nicole & Lünnemann, Patrick & Rumler, Fabio & Vilmunen, Jouko, 2005. "Price setting in the euro area: some stylized facts from individual consumer price data," Working Paper Series 0524, European Central Bank.
  31. Luis J. Álvarez & Emmanuel Dhyne & Marco M. Hoeberichts & Claudia Kwapil & Hervé le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmun, 2005. "Sticky prices in the euro area: a summary of new micro evidence," Banco de Espa�a Working Papers 0542, Banco de Espa�a.
  32. 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, vol. 100(2), pages 349-89, April.
  33. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc.
  34. Eyal Baharad & Benjamin Eden, 2003. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Vanderbilt University Department of Economics Working Papers 0321, Vanderbilt University Department of Economics.
  35. Götte, Lorenz & Minsch, Rudolf & Tyran, Jean-Robert, 2005. "Micro Evidence on the Adjustment of Sticky-Price Goods: It's How Often, Not How Much," CEPR Discussion Papers 5364, C.E.P.R. Discussion Papers.
  36. Edward P. Lazear, 1984. "Retail Pricing and Clearance Sales," NBER Working Papers 1446, National Bureau of Economic Research, Inc.
  37. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Do decreasing hazard functions for price changes make any sense?," Banco de Espa�a Working Papers 0508, Banco de Espa�a.
  38. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  39. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
  40. Daniel Hosken & David Reiffen, 2004. "Patterns of Retail Price Variation," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 128-146, Spring.
  41. Dias, D.A. & Marques, C. Robalo & Santos Silva, J.M.C., 2007. "Time- or state-dependent price setting rules? Evidence from micro data," European Economic Review, Elsevier, vol. 51(7), pages 1589-1613, October.
  42. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
  43. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
  44. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  45. Fabiani, Silvia & Druant, Martine & Hernando, Ignacio & Kwapil, Claudia & Landau, Bettina & Loupias, Claire & Martins, Fernando & Matha, Thomas & Sabbatini, Roberto & Stahl, Harald & Stokman, Ad, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," MPRA Paper 808, University Library of Munich, Germany.
  46. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
  47. Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 275-308, April.
  48. Konieczny, Jerzy D. & Skrzypacz, Andrzej, 2005. "Inflation and price setting in a natural experiment," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 621-632, April.
  49. Alan Kackmeister, 2007. "Yesterday's Bad Times Are Today's Good Old Times: Retail Price Changes Are More Frequent Today Than in the 1890s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1987-2020, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tpr:qjecon:v:123:y:2008:i:4:p:1415-1464. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.