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On the Source of Seasonality in Price Changes: The Role of Seasonality in Menu Costs

Author

Listed:
  • Ko Munakata

    (Director, Financial System and Bank Examination Department, Bank of Japan (E-mail: kou.munakata@boj.or.jp))

  • Takeshi Shinohara

    (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: takeshi.shinohara@boj.or.jp))

  • Shigenori Shiratsuka

    (Professor, Keio University (E-mail: shigenori.shiratsuka@keio.jp))

  • Nao Sudo

    (Associate Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: nao.sudou@boj.or.jp))

  • Tsutomu Watanabe

    (Professor, University of Tokyo (E-mail: watanabe@e.u-tokyo.ac.jp))

Abstract

Seasonality is among the most salient features of price changes, but it is notably less analyzed than seasonality of quantities and the business cycle component of price changes. To fill this gap, we use the scanner data of 199 categories of goods in Japan to empirically study the seasonality of price changes from 1990 to 2021. We find that the following four features generally hold for most categories: (1) The frequency of price increases and decreases rises in March and September; (2) Seasonal components of the frequency of price changes are negatively correlated with those of the size of price changes; (3) Seasonal components of the inflation rate track seasonal components of net frequency of price changes; (4) The seasonal pattern of the frequency of price changes is stable relative to that of the size of price changes. The pattern is, however, responsive to changes in the category-level annual inflation rate for the year. We conduct a simulation analysis using a simple state-dependent price model and show seasonal cycles in menu costs play an essential role in generating seasonality of price changes in the data. We then discuss the nature of seasonal cycles in menu costs and their implications for macroeconomic dynamics.

Suggested Citation

  • Ko Munakata & Takeshi Shinohara & Shigenori Shiratsuka & Nao Sudo & Tsutomu Watanabe, 2023. "On the Source of Seasonality in Price Changes: The Role of Seasonality in Menu Costs," IMES Discussion Paper Series 23-E-07, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:23-e-07
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    References listed on IDEAS

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    More about this item

    Keywords

    Scanner Data; Seasonality in Price Changes; New Keynesian Model; Menu Costs;
    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
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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