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The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications

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  • Olivier Coibion
  • Yuriy Gorodnichenko
  • Gee Hee Hong

Abstract

We study the cyclical properties of sales, regular price changes and average prices paid by consumers (“effective” prices) in a dataset containing prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas. Both the frequency and size of sales fall when local unemployment rates rise and yet the inflation rate for effective prices paid by consumers declines significantly with higher unemployment. This discrepancy can be reconciled by consumers reallocating their expenditures across retailers, a feature of the data which we document and quantify. We propose a simple model with household shopping effort and store-switching consistent with these stylized facts and document its implications for business cycles and policymakers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18273.

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Date of creation: Aug 2012
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Handle: RePEc:nbr:nberwo:18273

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Prices are even less sticky when looking at households
    by Economic Logician in Economic Logic on 2012-09-19 14:08:00
  2. 10 Monday PM Reads
    by Barry Ritholtz in The Big Picture on 2012-10-01 21:00:16
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Cited by:
  1. Emi Nakamura & J�n Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, 05.
  2. Gee Hee Hong & Nicholas Li, 2013. "Market Structure and Cost Pass-Through in Retail," Working Papers 13-5, Bank of Canada.
  3. Sudo, Nao & Ueda, Kozo & Watanabe, Kota, 2013. "Micro price dynamics during Japan's lost decades," Globalization and Monetary Policy Institute Working Paper 159, Federal Reserve Bank of Dallas.
  4. Berardi, N. & Gautier, E. & Le Bihan, H., 2013. "More Facts about Prices: France Before and During the Great Recession," Working papers 425, Banque de France.
  5. Nicholas Li & Gee Hee Hong, 2013. "Market Structure and Cost Pass-Through in Retail," Working Papers tecipa-470, University of Toronto, Department of Economics.
  6. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2013. "Price Setting with Customer Retention," EIEF Working Papers Series 1328, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2013.
  7. Eric Anderson & Emi Nakamura & Duncan Simester & Jón Steinsson, 2013. "Informational Rigidities and the Stickiness of Temporary Sales," NBER Working Papers 19350, National Bureau of Economic Research, Inc.
  8. Olivier Coibion & Yuriy Gorodnichenko, 2013. "Is The Phillips Curve Alive and Well After All? Inflation Expectations and the Missing Disinflation," NBER Working Papers 19598, National Bureau of Economic Research, Inc.

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