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The Distribution of the Size of Price Changes

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  • Alberto Cavallo
  • Roberto Rigobon

Abstract

Different theories of price stickiness have distinct implications on the number of modes in the distribution of price changes. We formally test for the number of modes in the price change distribution of 36 supermarkets, spanning 22 countries and 5 continents. We present results for three modality tests: the two best-known tests in the statistical literature, Hartigan’s Dip and Silverman’s Bandwidth, and a test designed in this paper, called the Proportional Mass test (PM). Three main results are uncovered. First, when the traditional tests are used, unimodality is rejected in about 90 percent of the retailers. When we used the PM test, which reduces the impact of smaller modes in the distribution and can be applied to test for modality around zero percent, we still reject unimodality in two thirds of the supermarkets. Second, category-level heterogeneity can account for about half of the PM test’s rejections of unimodality. Finally, a simulation of the model in Alvarez, Lippi, and Paciello (2010) shows that the data is consistent a combination of both time and state-dependent pricing behaviors.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16760.

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Date of creation: Feb 2011
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Handle: RePEc:nbr:nberwo:16760

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Citations

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Cited by:
  1. Gagnon, Etienne & López-Salido, J David & Vincent, Nicolas, 2012. "Individual Price Adjustment along the Extensive Margin," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9143, C.E.P.R. Discussion Papers.
  2. Martin S. Eichenbaum & Nir Jaimovich & Sergio Rebelo & Josephine Smith, 2012. "How Frequent Are Small Price Changes?," NBER Working Papers 17956, National Bureau of Economic Research, Inc.
  3. Alvarez, Fernando E & Lippi, Francesco, 2012. "Price setting with menu cost for multi-product firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8863, C.E.P.R. Discussion Papers.
  4. Steffen Ahrens & Stephen Sacht, 2014. "Estimating a high-frequency New-Keynesian Phillips curve," Empirical Economics, Springer, Springer, vol. 46(2), pages 607-628, March.
  5. Alberto Cavallo & Brent Neiman & Roberto Rigobon, 2012. "Currency Unions, Product Introductions, and the Real Exchange Rate," NBER Working Papers 18563, National Bureau of Economic Research, Inc.
  6. Gautier, E. & Le Saout, R., 2012. "The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data," Working papers, Banque de France 375, Banque de France.
  7. Roberto Rigobon & Brent Neiman & Alberto Cavallo, 2013. "Product Introductions, Currency Unions, and the Real Exchange Rate," 2013 Meeting Papers, Society for Economic Dynamics 1357, Society for Economic Dynamics.

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