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Price dynamics, retail chains and inflation measurement

  • Nakamura, Alice O.
  • Nakamura, Emi
  • Nakamura, Leonard I.

We use a large scanner price dataset to study grocery price dynamics. Previous analyses based on store scanner data emphasize differences in price dynamics across products. However, we also document large differences in price movements across different grocery store chains. A variance decomposition indicates that characteristics at the level of the chains (as opposed to individual stores) explain a large fraction of the total variation in price dynamics. Thus, retailer characteristics are found to be crucial determinants of heterogeneity in pricing dynamics, in addition to product characteristics. We empirically explore how the price dynamics we document affect price index measures.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304-4076(10)00185-5
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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 161 (2011)
Issue (Month): 1 (March)
Pages: 47-55

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Handle: RePEc:eee:econom:v:161:y:2011:i:1:p:47-55
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Staff Working Papers 05-4, Bank of Canada.
  2. Emi Nakamura & Jón Steinsson, 2010. "Monetary Non-neutrality in a Multisector Menu Cost Model," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 961-1013.
  3. W. Erwin Diewert, 1998. "Index Number Issues in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 47-58, Winter.
  4. Dhyne, Emmanuel & Álvarez, Luis J. & Le Bihan, Hervé & Veronese, Giovanni & Dias, Daniel & Hoffmann, Johannes & Jonker, Nicole & Lünnemann, Patrick & Rumler, Fabio & Vilmunen, Jouko, 2005. "Price setting in the euro area: some stylized facts from individual consumer price data," Working Paper Series 0524, European Central Bank.
  5. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115, pages 171-199.
  6. Robert C. Feenstra & Matthew D. Shapiro, 2001. "High-Frequency Substitution and the Measurement of Price Indexes," NBER Working Papers 8176, National Bureau of Economic Research, Inc.
  7. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
  8. Joel Sobel, 1984. "The Timing of Sales," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 353-368.
  9. Leonard I. Nakamura, 1997. "The measurement of retail output and the retail revolution," Working Papers 97-4, Federal Reserve Bank of Philadelphia.
  10. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1415-1464.
  11. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  12. Michael Woodford, 2008. "Information-Constrained State-Dependent Pricing," NBER Working Papers 14620, National Bureau of Economic Research, Inc.
  13. Emi Nakamura, 2008. "Pass-Through in Retail and Wholesale," American Economic Review, American Economic Association, vol. 98(2), pages 430-37, May.
  14. Daniel Hosken & David Reiffen, 2004. "Patterns of Retail Price Variation," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 128-146, Spring.
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