IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v103y2018icp60-82.html
   My bibliography  Save this article

Dynamics of the U.S. price distribution

Author

Listed:
  • Berger, David
  • Vavra, Joseph

Abstract

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 across all three datasets: (1) Frequency of price adjustments is countercyclical. (2) Frequency of price adjustments is correlated with variance. Conversely, other statistics that have received recent attention, like kurtosis, do not exhibit uniform patterns across our data sets. What implications do our empirical results have for monetary policy? Using a flexible accounting framework that 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.

Suggested Citation

  • Berger, David & Vavra, Joseph, 2018. "Dynamics of the U.S. price distribution," European Economic Review, Elsevier, vol. 103(C), pages 60-82.
  • Handle: RePEc:eee:eecrev:v:103:y:2018:i:c:p:60-82
    DOI: 10.1016/j.euroecorev.2018.01.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292118300072
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.euroecorev.2018.01.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mark Bils, 2009. "Do Higher Prices for New Goods Reflect Quality Growth or Inflation?," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 637-675.
    2. Simon Gilchrist & Raphael Schoenle & Jae Sim & Egon Zakrajšek, 2017. "Inflation Dynamics during the Financial Crisis," American Economic Review, American Economic Association, vol. 107(3), pages 785-823, March.
    3. 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.
    4. Fernando Alvarez & Francesco Lippi, 2014. "Price Setting With Menu Cost for Multiproduct Firms," Econometrica, Econometric Society, vol. 82(1), pages 89-135, January.
    5. Auer, Raphael A. & Schoenle, Raphael S., 2016. "Market structure and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 98(C), pages 60-77.
    6. Kehoe, Patrick & Midrigan, Virgiliu, 2015. "Prices are sticky after all," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 35-53.
    7. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-366, July.
    8. Berger, David & Faust, Jon & Rogers, John H. & Steverson, Kai, 2012. "Border prices and retail prices," Journal of International Economics, Elsevier, vol. 88(1), pages 62-73.
    9. Alvarez, Fernando & Le Bihan, Hervé & Lippi, Francesco, 2013. "Small and large price changes and the propagation of monetary shocks," CEPR Discussion Papers 9770, C.E.P.R. Discussion Papers.
    10. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 675-727.
    11. Bhattarai, Saroj & Schoenle, Raphael, 2014. "Multiproduct firms and price-setting: Theory and evidence from U.S. producer prices," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 178-192.
    12. Bhattarai, Saroj & Eggertsson, Gauti B. & Schoenle, Raphael, 2018. "Is increased price flexibility stabilizing? Redux," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 66-82.
    13. Caballero, Ricardo J. & Engel, Eduardo M.R.A., 2007. "Price stickiness in Ss models: New interpretations of old results," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 100-121, September.
    14. 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.
    15. Joseph Vavra & David Berger, 2013. "Pass-through Across Products and Time," 2013 Meeting Papers 452, Society for Economic Dynamics.
    16. Virgiliu Midrigan, 2010. "Is Firm Pricing State or Time Dependent? Evidence from U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 643-656, August.
    17. David Berger & Joseph Vavra, 2017. "Shocks vs. Responsiveness: What Drives Time-Varying Dispersion?," NBER Working Papers 23143, National Bureau of Economic Research, Inc.
    18. Joseph Vavra, 2014. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 215-258.
    19. Virgiliu Midrigan, 2011. "Menu Costs, Multiproduct Firms, and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(4), pages 1139-1180, July.
    20. Fatih Guvenen & Serdar Ozkan & Jae Song, 2014. "The Nature of Countercyclical Income Risk," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 621-660.
    21. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2016. "The Real Effects of Monetary Shocks in Sticky Price Models: A Sufficient Statistic Approach," American Economic Review, American Economic Association, vol. 106(10), pages 2817-2851, October.
    22. 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.
    23. Andrew S. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 703-725.
    24. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284, Elsevier.
    25. Shaowen Luo & Daniel Villar Vallenas, 2017. "The Skewness of the Price Change Distribution : A New Touchstone for Sticky Price Models," Finance and Economics Discussion Series 2017-028, Board of Governors of the Federal Reserve System (U.S.).
    26. Neiman, Brent, 2010. "Stickiness, synchronization, and passthrough in intrafirm trade prices," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 295-308, April.
    27. repec:hrv:faseco:30703806 is not listed on IDEAS
    28. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo, 2011. "Reference Prices, Costs, and Nominal Rigidities," American Economic Review, American Economic Association, vol. 101(1), pages 234-262, February.
    29. Pennings, Steven, 2017. "Pass-through of competitors' exchange rates to US import and producer prices," Journal of International Economics, Elsevier, vol. 105(C), pages 41-56.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Etienne Gagnon & David López-Salido & Nicolas Vincent, 2013. "Individual Price Adjustment along the Extensive Margin," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 235-281.
    2. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta†Eksten & Stephen J. Terry, 2018. "Really Uncertain Business Cycles," Econometrica, Econometric Society, vol. 86(3), pages 1031-1065, May.
    3. Hobijn, Bart & Nechio, Fernanda & Shapiro, Adam Hale, 2021. "Using Brexit to identify the nature of price rigidities," Journal of International Economics, Elsevier, vol. 130(C).
    4. Bachmann, Rüdiger & Born, Benjamin & Elstner, Steffen & Grimme, Christian, 2019. "Time-varying business volatility and the price setting of firms," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 82-99.
    5. Joseph Vavra, 2014. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 215-258.
    6. Karadi, Peter & Schoenle, Raphael & Wursten, Jesse, 2020. "Measuring Price Selection in Microdata - It's Not There," CEPR Discussion Papers 15383, C.E.P.R. Discussion Papers.
    7. Giulietti, Monica & Otero, Jesús & Waterson, Michael, 2020. "Rigidities and adjustments of daily prices to costs: Evidence from supermarket data," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    8. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, May.
    9. Mehmet Balcilar & Zeynel Abidin Ozdemir, 2020. "A re-examination of growth and growth uncertainty relationship in a stochastic volatility in the mean model with time-varying parameters," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(3), pages 611-641, August.
    10. Scott R. Baker & Nicholas Bloom & Stephen J. Terry, 2020. "Using Disasters to Estimate the Impact of Uncertainty," NBER Working Papers 27167, National Bureau of Economic Research, Inc.
    11. Fernando Alvarez & Francesco Lippi & Aleksei Oskolkov, 2020. "The Macroeconomics of Sticky Prices with Generalized Hazard Functions," EIEF Working Papers Series 2017, Einaudi Institute for Economics and Finance (EIEF), revised Jun 2020.
    12. Scott R. Baker & Nicholas Bloom, 2013. "Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments," CEP Discussion Papers dp1243, Centre for Economic Performance, LSE.
    13. Ruediger Bachmann & Giuseppe Moscarini, 2011. "Business Cycles and Endogenous Uncertainty," 2011 Meeting Papers 36, Society for Economic Dynamics.
    14. Yuichi Kichikawa & Hiroshi Iyetomi & Hideaki Aoyama & Yoshi Fujiwara & Hiroshi Yoshikawa, 2020. "Interindustry linkages of prices—Analysis of Japan’s deflation," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-26, February.
    15. Nicoletta Berardi & Erwan Gautier & Hervé Le Bihan, 2015. "More Facts about Prices: France Before and During the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1465-1502, December.
    16. Bachmann, Rüdiger & Bayer, Christian, 2013. "‘Wait-and-See’ business cycles?," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 704-719.
    17. David R. Munro, 2021. "Consumer Behavior and Firm Volatility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(4), pages 845-873, June.
    18. Can Tian, 2012. "Riskiness Choice and Endogenous Productivity Dispersion over the Business Cycle," PIER Working Paper Archive 12-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    19. Luo, Shaowen & Villar, Daniel, 2021. "The price adjustment hazard function: Evidence from high inflation periods," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    20. Gopinath, Gita & Itskhoki, Oleg & Neiman, Brent, 2012. "Trade Prices and the Global Trade Collapse of 2008–09," Scholarly Articles 11988099, Harvard University Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carvalho, Carlos & Kryvtsov, Oleksiy, 2021. "Price selection," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 56-75.
    2. Peter Karadi & Adam Reiff, 2019. "Menu Costs, Aggregate Fluctuations, and Large Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 111-146, July.
    3. Guido Ascari & Timo Haber, 2019. "Sticky prices and the transmission mechanism of monetary policy: A minimal test of New Keynesian models," Economics Series Working Papers 869, University of Oxford, Department of Economics.
    4. de la Porte Simonsen, Lasse & Petrella, Ivan & Santoro, Emiliano, 2018. "Inflation Dynamics and Price Flexibility in the UK," CEPR Discussion Papers 13027, C.E.P.R. Discussion Papers.
    5. DongIk Kang & Andrew Usher, . "Does Product Revenue Matter for Price Setting and Monetary Policy Transmission?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    6. Joseph Vavra, 2011. "Inflation Dynamics and Time-Varying Uncertainty: New Evidence and an Ss Interpretation," 2011 Meeting Papers 126, Society for Economic Dynamics.
    7. Hobijn, Bart & Nechio, Fernanda & Shapiro, Adam Hale, 2021. "Using Brexit to identify the nature of price rigidities," Journal of International Economics, Elsevier, vol. 130(C).
    8. Petrella, Ivan & Santoro, Emiliano & Simonsen, Lasse P., 2019. "Time-varying Price Flexibility and Inflation Dynamics," EMF Research Papers 28, Economic Modelling and Forecasting Group.
    9. Isaac Baley & Andrés Blanco, 2021. "Aggregate Dynamics in Lumpy Economies," Econometrica, Econometric Society, vol. 89(3), pages 1235-1264, May.
    10. Tovonony Razafindrabe, 2017. "Nonlinearity and asymmetry in the exchange rate pass-through: What role for nominal price stickiness?," Review of International Economics, Wiley Blackwell, vol. 25(4), pages 711-732, September.
    11. Joseph Vavra, 2014. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 215-258.
    12. George-Marios Angeletos, 2018. "Frictional Coordination," Journal of the European Economic Association, European Economic Association, vol. 16(3), pages 563-603.
    13. Costain, James & Nakov, Anton, 2015. "Precautionary price stickiness," Journal of Economic Dynamics and Control, Elsevier, vol. 58(C), pages 218-234.
    14. Costain, James & Nakov, Anton & Petit, Borja, 2018. "Monetary policy implications of state-dependent prices and wages," CEPR Discussion Papers 13398, C.E.P.R. Discussion Papers.
    15. Simon Mongey, 2017. "Market Structure and Monetary Non-neutrality," Staff Report 558, Federal Reserve Bank of Minneapolis.
    16. Gee Hee Hong & Matthew Klepacz & Ernesto Pasten & Raphael Schoenle, 2021. "The Real Effects of Monetary Shocks: Evidence from Micro Pricing Moments," Working Papers 21-17, Federal Reserve Bank of Cleveland.
    17. Demery, David, 2012. "State-dependent pricing and the non-neutrality of money," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 933-944.
    18. Cosmin Ilut & Rosen Valchev & Nicolas Vincent, 2020. "Paralyzed by Fear: Rigid and Discrete Pricing Under Demand Uncertainty," Econometrica, Econometric Society, vol. 88(5), pages 1899-1938, September.
    19. Isaac Baley & J. Andrés Blanco, 2016. "Menu costs, uncertainty cycles, and the propagation of nominal shocks," Economics Working Papers 1532, Department of Economics and Business, Universitat Pompeu Fabra.
    20. Yang, Choongryul, 2022. "Rational inattention, menu costs, and multi-product firms: Micro evidence and aggregate implications," Journal of Monetary Economics, Elsevier, vol. 128(C), pages 105-123.

    More about this item

    Keywords

    Price dispersion; Price rigidity; Price distributions; Uncertainty; Business cycles; Inflation;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:103:y:2018:i:c:p:60-82. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/eer .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.