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Prices and Supply Disruptions during Natural Disasters

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  • Alberto Cavallo
  • Eduardo Cavallo
  • Roberto Rigobon

Abstract

We study the daily behavior of supermarket prices and product availability following two recent natural disasters: the 2010 earthquake in Chile and the 2011 earthquake in Japan. In both cases there was an immediate and persistent effect on product availability. The number of goods available for sale fell 32% in Chile and 17% in Japan from the day of the disaster to its lowest point, which occurred 61 and 18 days after the earthquakes, respectively. Product availability recovered slowly, and a significant share of goods remained out of stock after six months. By contrast, prices were stable for months, even for goods that were experiencing severe shortages. These trends are present at all levels of aggregation, but there is heterogeneity across categories. We further look at the frequency and magnitudes of price changes in both countries and find that the results in Chile are consistent with pricing models where retailers have fear of "customer anger". In Japan the evidence suggests a bigger role for supply disruptions that restricted the ability of retailers to re-stock goods after the earthquake.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19474.

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Date of creation: Sep 2013
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Handle: RePEc:nbr:nberwo:19474

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  1. Rotemberg, Julio J., 2005. "Customer anger at price increases, changes in the frequency of price adjustment and monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 829-852, May.
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Cited by:
  1. Abe, Naohito & Moriguchi, Chiaki & Inakura, Noriko, 2014. "The Impact of the Great East Japan Earthquake on Commodity Prices: New Evidence from High-Frequency Scanner Data," Research Center for Price Dynamics Working Paper Series 12, Research Center for Price Dynamics, Institute of Economic Research, Hitotsubashi University.

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