Dynamics of the U.S. Price Distribution

We use microdata underlying U.S. consumer, producer and import price indices to document how the distribution of price changes evolves over time. Two striking features characterize pricing at each stage of production: 1) Frequency is countercyclical. 2) Frequency is correlated with variance. Conversely, other statistics which have received recent attention, like kurtosis, do not exhibit uniform patterns across our datasets. What implications do our empirical results have for monetary policy? Using a flexible accounting framework which collapses the high-dimensional distribution of price changes into a single measure of aggregate price flexibility, we show that flexibility is highly variable and countercyclical.